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Bussines and Finance

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Submitted By mjash
Words 1346
Pages 6
Econ 141, topic 7 [ Inflation]

1. Inflation
- Inflation is a continuing rise in the price level, which causes money to lose value.
- Inflation is a rise in the price level, not in the price of a particular commodity.
- It is ongoing, not a-onetime-only increase in the price level.
- The inflation rate is the percentage change in the price level. It is calculated as the following:
Current price level – Last year's price level x 100 Last year's price level

2. Demand-Pull inflation
- Demand pull inflation is caused by an increase in aggregate demand.
- An increase in consumption or investment or government expenditures or exports or the quantity of money → increases the aggregate demand.
- A decrease in imports or taxes or interest rates → increases the aggregate demand

Initial effect of an increase in aggregate demand:

Price level LAS SAS The increase in demand raises the price level from 110 to 120

120

110 AD1

AD0

Real GDP

Money wage rate response

Price level LAS SAS1

130 C SAS0 Money wage increases and SAS0 120 B shifts left to SAS1. Price level rises from 120 to 130. 110

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