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Increase in price of oil
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Increase in wages of workers
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Fall in exchange rate (increase in price of imports)
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Depreciation of capital stock/lack of investment (AS curve shifts left)
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Increased corporation tax
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Increasing consumption e.g Rising house prices causing wealth effect
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Depreciating currency: exports cheaper, so AD rises
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Low interest rates: cheaper to borrow, consumption and investment rise, AD rises
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Firms may use inflation to erode the value of their worker wages without cutting them in nominal terms people more likely to accept real wage fall rather than nominal
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Consumption may rise: less reason to save if inflation
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Loss of international competitiveness exports expensive, imports cheap
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Increased Uncertainty: reduce investment due to unpredictability and falling consumption
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Costs of adjusting menus
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Less investment from abroad if inflation why buy into a currency that is falling in real value
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Those with high levels of personal debt benefit from inflation as the real value of the debt falls in the same way real value of savings is eroded
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Does not affect those on indexed incomes (i.e adjusted for inflation)
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If firms are slow to respond and don't increase their prices, consumers will be better off because their wage may increase, but prices don't
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Savings & assets (real value) fall if inflation rate is above interest rate
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Purchasing power falls: -ve impact on fixed incomes
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Shoe leather costs: costs of shopping around due to fluctuations and lack of info of market prices
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Unemployment rises because firms face higher costs (particularly cost-push) + AD likely to fall because fixed incomes afford less
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Redistribution of income: those on fixed incomes: fall in disposable Y, but indexed do not lose out
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Reduced real interest rate, erodes national debt value
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Can cut public sector wages and benefit payouts by freezing themreal value falls
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Tax revenue falls if taxes not increased in-line with inflation
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Trade deficit worsens because more imports cheaper, and exports expensive for foreign customers
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Budget deficit worsens because unemployment benefits or indexed incomes
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Cost of menu changing
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Political instability (e.g Nazi Germany)
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If wages are indexed, no effect
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Wages may not fall if in a trade union
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Some workers expect higher wages, but do not get them due to lack of firm confidence (especially if firms cannot pass increased cost onto consumers)
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Increased unemployment (firms may cut costs if they cannot pass inflationary costs onto consumers)
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Workers suffer if wages or tax allowance does not increase in line (indexed)
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1/MPW
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1/(MPI+MPS+MPT)
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1/(1-MPC)
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1/MPS
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Multiplier * Change in Injection = Change in Income
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Multiplier = Change in Income / Change in Injection
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1/MPW
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1/(MPI+MPS+MPT)
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1/(1-MPC)
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1/MPS
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Multiplier * Change in Injection = Change in Income
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Multiplier = Change in Income / Change in Injection
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