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AS90794: Describe inflation and its causes and effects using economic models

2.1. AS90794: Describe inflation and its causes and effects using economic models. 2.1. Inflation:. 2.1. Inflation: models. Quantity Theory of Money: the relationship between the money supply and the rate of inflation. The Supply of Money (M1). The General Level of Prices. M V = P Q.

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AS90794: Describe inflation and its causes and effects using economic models

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  1. 2.1 AS90794: Describe inflation and its causes and effects using economic models

  2. 2.1 Inflation:

  3. 2.1 Inflation: models Quantity Theory of Money: the relationship between the money supply and the rate of inflation. The Supply of Money (M1) The General Level of Prices M V = P Q PQ is a measure of nominal GDP Velocity of Circulation Real Output An increase in the money supply is likely to lead, in the first instance, to an increase in the general level of prices. Limitations: This assumes that V and Q are constant. A more sophisticated approach allows V to change but in a predictable way that allows the RBNZ to still use monetary policy to influence nominal GDP.

  4. MarketforG & S MarketforG & S Price Level Price Level AS’ AS AS P’ P’ Pe Pe AD’ AD AD RGDP RGDP Qe Qe 2.1 Inflation: AD/AS Modelto illustrate cost push and demand pull inflation Demand Pull Inflation: Any change that causes the economy’s demand for goods and services to increase. Cost Push Inflation: Any change that causes the economy’s supply of goods and services to decrease.

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