Controlled Inflation

• What is inflation?

  A general increase in prices throughout an economy.
• How is inflation measured?

  Through the Consumer Price Index
• What are the two causes of inflation?

  • Cost Push Inflation
  • Demand Pull Inflation
• Explain Cost Push Inflation:

  Aggregate Supply shifts to the left, causing an increase in general price levels.
• Explain Demand Pull Inflation:

  Aggregate Demand shifts to the right, causing an increase in general price levels.
• How might controlled inflation affect economic growth?

  Inflation-controlling measures often reduce disposable incomes. Because of lower consumer spending, therefore, the value of products in the economy decrease.
• How might controlled inflation affect the Balance of Payments?

  Inflation-controlling measures often reduce disposable incomes. Due to lower consumer spending, therefore, there is less import expenditure, benefitting the balance of payments.
• How might controlled inflation affect employment?

  Controlled inflation leads to costs of production deceasing. Because of this, firms can demand more labour to produce a product, increasing employment.