Inflation

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Inflation Deflation
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Inflation article

• use highlighters
• be prepared to answer the following Qs from
  the article

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Whats so BAD about inflation?

• RPI is an aggregate figure what does this
  mean?
• Why are interest rates on mortgages such an
  important monetary tool to control inflation?
• What is the difference between nominal and real
  prices?
• What is demand pull inflation?
• What is cost push inflation?
• What is monetary inflation?
• The article identifies 4 problems of inflation.
  What are they?

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Deflation
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Deflation for some products
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Whats the start end points?
Whats the trend?
Describe the changes in the data provided.
What effects do you think this had on the economy?
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To the handout
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The diagrams demand side cause of deflation
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Supply side cause of deflation
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Complete the Qs

• What has caused the prices of audio-visual
  equipment, personal computers and new and second
  hand cars to have fallen over recent years? (2
  marks)
• Why has government been taxing cigarettes and
  fuel? (3 marks)
• What problems can you associate with deflation
  for savers, businesses and workers? (6 marks)
• Why do stable prices encourage businesses to
  increase their investment levels? (3 marks)
• What factors could cause a fall in AD/
  CIG(X-M)? (3 marks)
• Explain how government can influence an outward
  shift in LRAS. (3 marks)
• MARKS 20

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Past paper practice
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January 2006 - inflation
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The questions