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Unformatted text preview: to meet the demand and produce more at higher prices – this caused costs to rise, and then prices had to rise again: an inflationary spiral. An increased cost to suppliers (not caused by excess demand) means that they raise their prices in order to try and retain the same profit margins. When real prices become high, people start to demand higher incomes. Sometimes firms further increase prices in order to cover their new higher wage costs. Prices get higher again, and so people again demand more wages. When this happens repeatedly, it can lead to another inflationary spiral, and it is what happened to the UK economy in the late 1970’s. Source: “ The UK Recession of 1991-92 “. http://www.economicshelp.org/2008/02/uk-recession-of-1991-92.html...
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This note was uploaded on 03/10/2011 for the course ECON 101 taught by Professor Duc during the Spring '05 term at Linfield.
- Spring '05