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14: Inflation
CIE3M1-01
M. Nicholson
What Is Inflation?
Inflation
decrease in the
general level of prices over time
(Depression 1930s)
Pgs. 301 302 #1 - 2
Demand-Pull Inflation
If
Demand-Pull Inflation
Government Policies to
Control Demand-Pull Inflation
Contractionary Fiscal Policy G
and T govt revenue for
use during a recession
2. Contractionary / Tight Money
Policy Sell bonds, the bank
rate and use moral suasion to
discourage bank loans
3. Pg. 303 #3 - 5
1.
negative consequence of
controlling inflation with
contractionary policies
2. Delays in applying the policy
recognition lag; decision lag;
implementation lag
Cost-Push / Sellers
Inflation
resource
Cost-Push / Sellers
Inflation
Stagflation
- occurred in the
1970s when OPEC raised the
price of oil which was an
essential source of energy for the
Canadian economy (e.g. bucket
has holes on the side that leak)
Oil Crisis Video
Cost-Push / Sellers
Inflation
Expenditure Method
M (supply of money) x V (velocity
of circulation of money) = GDP
GDP = P x Q MV = PQ
Recession M x V = P x Q
Full Employment M x V = P
xQ
aimed at restraining
inflation by holding wages and
prices below a specific level
Successful controls during WW 2
but unsuccessful controls in the
1960s and 70s. Video