CH8-20.03.09 - 1 Idle Capacity When expenditures increase...

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20.03.2009 CHAPTER 8 MACROECONOMIC INSTABILITY Inflation Defined and Measured 1. Meaning of Inflation: Inflation is a continuous rise of the general price level in an economy. Not all prices rise and some prices more than others. -Therefore, the rate of percentage of rise of different goods may change. 2. Measurement of Inflation 3. Facts of Inflation Many nations in the world suffered from inflation: 1 digit 5-6%, 2 digits 50-60%, 3 digits 120-130% Mild Inflation (Ilımlı) Galloping Inflation (Hızlı Giden) Hyper Inflation (En Yüksek) 4. Causes: Theories of inflation. There are two types of inflation. a. Demand-Pull Inflation (Talep-Harcamalar Enflasyonu) In this type of inflation, expenditures cause the inflation. (Not always exp. increase, prices increase.) When expenditures increase so will the general-price level. But this is not so simple. The effect of expenditures on inflation depends on the actual capacity use in the economy.
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Unformatted text preview: 1. Idle Capacity: When expenditures increase, output increases b ut PL (price level) remains the same. (Many unemployed people, machines, factors of production…) 2. A Capacity in Between: Output increases PL also increases. 3. Full Capacity: Output remains the same, expenditures cause full price increase. (All capacity uses, no unemployment) b. Cost Push or Supply-Side Inflation (Maliyet İtişli-Arz) In this type, increase in per unit production costs causes the inflation. Due to some reasons per unit production costs may increase. *Cost ↑Profits↓Supply↓Price↑ *Mark-Up Pricing (Kar payı-örneğin %10 kar) 1. Wage Push Variant (sendika) 2. Supply-Shock Variant (arz şoku-petrol, doğalgaz, enerji gibi, kur (ithal ürünler)) 3. Complexities (demand-full may converts to the cost push and they may fallow each other)...
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