Inflation

• Demand-pull inflation

  When there is too much demand (more than the economy can supply)
• Demand-pull inflation

  Can make profit margins go up
• Cost-push inflation

  When rising costs push up prices
• Employee wage rises

  Can make prices go up-especially if productivity isn't rising
• Cost-push inflation

  Can make profit margins go down if businesses decide not to put up their prices
• Rate of inflation

  The percentage change in the price of goods and services within an economy, in one year compared to the previous year
• Rising prices


  Cause people to demand higher wages
• Wages going up

  Increases demand as people can afford more
• Wages going up

  Also causes prices to go up due to increased labour costs for employing businesses
• When inflation is high

  Spending goes up temporarily-people rush to buy more before prices go up further
• When inflation in the UK is high

  UK exports become expensive abroad, UK businesses become less competitive globally
• When inflation in the UK is low

  UK businesses have a competitive advantage globally
• Inflation that's too high is bad for the economy
• Deflation

  An overall decrease in the price of goods and services within an economy