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- Created by: FunkyFrog
- Created on: 07-06-14 13:50
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- Costs of Inflation
- Reducing Inflation: undesirable by governments
- Declining international competitiveness: high inflation - increases pries of exports. Demand for exports declines. Government needs for exchange rate to fall (short run approach)
- Confusion and Uncertainty: When there is high inflation, people are uncertain about what to spend their money on.
- Due to low consumer demand, there will be negative multiplier effect
- Long run, low growth
- Due to low consumer demand, there will be negative multiplier effect
- MENU COSTS
- SHOE LEATHER COSTS
- Redistribution of Income: Borrowers worse off under high inflation than lenders. However, this depends on the real rate of interest
- Boom & Bust Economic Cycles: High inflationary growth is unsustainable and usually ends in recession
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