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8 Cards in this Set
- Front
- Back
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INFLATION |
Sustained increase in general rise of prices - maintain underlying inflation target rate of 2-3% |
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CPI |
Consumer Price Index is a quarterly indicator of overall price movements of basket of goods and services |
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Headline inflation rate |
Not the good one. Ordinary inflation rate, everything counts, important to know cost of living Misleading indicator - includes volatile goods and services or one off factors. |
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Underlying inflation rate |
Determine residual inflationary pressures after removal volatile factors - true rate |
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Causes of inflation |
- Demand pull - Cost push - Imported inflation - Inflationary expectations EXTRA - Government policy - Excessive increase in money supply |
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ADVANTAGES OF INFLATION |
1. Unemployment 2. Exchange rate impacts 3. Interest rate 4. Decrease likelihood of economy experiencing deflation 5. International competitiveness |
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DIS OF INFLATION |
1. Economic growth and uncertainty 2. International competitiveness decrease --> high interest rates 3. Wage price inflationary spiral 4. Distortion of income |
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Policies to sustain low inflation |
Monetary - Increase cash rate - banks cost more settlement costs - higher interest rates - reduce consumption and eco activity - reduce inflation Fiscal - Increase tax and decrease spending Microeconomic - Reduce protection - Reforms to labour market - link to productivity - Spend on Infrastructure |
