term1 Definition1term2 Definition2term3 Definition3
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Demand pull inflation
This is inflation as a result of demand side factors or cause shifts in AD
Increases in AD will be inflationary
Negative output gap
Cost pull inflation
This is inflation as a result of changes in prices
Raw materials, wages, tight labour market
Can also effect supply pull inflation and powerful unions
Taxes hold inflationary pressures on all goods
Output gap...
Positive output gaps will have a TIGHT LABOUR MARKET leading to an increase in AD, people will be then UNEMPLOYED through STRUCTURAL UNEMPLOYMENT. Therefore a LOW LEVEL OF BENEFITS and cause FRICTIONAL UNEMPLOYMENT.
Negative output gaps will have people discouraged from employment- both STRUCTURAL and FRICTIONAL UNEMPLOYMENT
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