Question 1 (025 points) the theory of new keynesian inflation dynamics suggests that a fall in aggregate demand would question 1 options: immediately reduce the price level, followed by a more sluggish decline in real gdp immediately raise the price level, followed by a more sluggish decline in real gdp immediately reduce real gdp, followed. Demand pull inflation occurs when aggregate demand is growing at an unsustainable rate leading to increased pressure on scarce resources and a positive output gap when there is excess demand , producers can raise their prices and achieve bigger profit margins. Aggregate supply at each price level might have been caused by improvements in technology and productivity or the effects of an increase in the active labour force. In some circumstances, the central bank may not increase interest rates, despite an increase in inflation for example, in 2008 and 2011, we had a rise in inflation to 5%, but, the central bank kept interest rates low. While the inflation rate and the interest rate generally have an inverse relationship, these tools are not always successful in affecting inflation - for example, in response to the 2008 financial crisis and ensuing recession, the fed raised its target inflation level to 2% and lowered interest rates to nearly zero.
Conceivably, deflation could also be caused by a sudden, large expansion in aggregate supply arising, for example, from rapid gains in productivity and broadly declining costs i don't know of any unambiguous example of a supply-side deflation, although china in recent years is a possible case. The causes of the current ethiopian soaring inflation rate: a non-technical analysis by seid hassan may 7, 2008 — the most significant and daunting problem facing ethiopia today is the rampant. Increase aggregate demand/increase the money supply (one mark) and this may cause cost-push inflation/cause a wage-price spiral (one mark) or.
Cause inflation to become too high or cause financial instability, whereas others contend that raising rates too quickly will cause inflation to remain too low and choke off the expansion monetary policy and the federal reserve: current policy and conditions. According to the hybrid, or consensus, view of aggregate supply, the chance for an aggregate demand increase to cause inflation accelerates as the economy moves toward capacity a leftward shift in aggregate demand will cause a decrease in both output and price level if aggregate supply is. Only cause an acceleration of the inflation rate the new classical revolution, with lucas's defense of a vertical pc even in the short-run (lucas, 1972), reinforced the view on the.
B also takes place during a period of unanticipated inflation and can cause serious social problems c may also take place and may lead to increases in unemployment it is always worth thinking about links between the main parts of macroeconomics, as a change in one may well affect another. Inflation means there is a sustained increase in the price level the main causes of inflation are either excess aggregate demand (economic growth too fast) or cost push factors (supply-side factors. B evaluate how well each type of system answers the three economic questions and meets the broad social and economic goals of freedom, security, equity, growth, efficiency, and stability. The dramatic increase in the fed's monetary liabilities after 2008 — from just under $1 trillion to over $4 trillion now — caused concern that surging inflation was imminent that hasn't happened.
The ___ effect for inflation is an increase in the price level due to increases in aggregate demand, but when demand decreases, product prices, wage rates, and per-unit production cots are inflexible downward. Aggregate demand economists use a variety of models to explain how national income is determined, including the aggregate demand - aggregate supply (ad - as) model this model is derived from the basic circular flow concept, which is used to explain how income flows between households and firms. Consumers, factors that can cause demand curve shifts • demand and supply diagram showing initial and final equilibrium price and quantity, and a rightward demand curve shift leading to excess demand.
15 june 2012 question 3 a) assess the view that the main cause of globalisation is the increased significance of transnational companies (20) nb candidates may take either perspective as analysis and use the reverse arguments for evaluation ie might argue that tncs are or are not the main cause of globalisation. When used properly, the term inflation refers to the depreciation in purchasing power of a fiat currency—often resulting in the appearance of rising prices when you attempt to buy essentials such as wheat, milk, meat, clothing, medical services, coffee, or electricity. Inflation is primarily caused by an increase in the money supply that outpaces economic growth ever since industrialized nations moved away from the gold standard during the past century, the value of money is determined by the amount of currency that is in circulation and the public's perception of the value of that money.
Price inflation inflation is a sustained increase in the average price of all goods and services produced in an economy money loses purchasing power during inflationary periods since each unit of currency buys progressively fewer goods. Inflation can be reduced by policies that slow down the growth of ad and/or boost the rate of growth of aggregate supply (as) supply side policies seek to increase productivity, competition and innovation - all of which can maintain lower prices these are ways of controlling inflation in the. The money supply as the root cause of inflation eg friedman, (1970), schwartz, (1973) while others eg machlup (1960), look at the increase in costs as the major determining factor.