CIMA BA1 Syllabus A. Macroeconomic And Institutional Context Of Business - Inflation And The Trade Cycle - Notes
Inflation
Demand-Pull Inflation
Caused by an increase in the general level of economic activity
The trade cycle is at its boom phase
Aggregate demand may rise above aggregate supply
Labour is at full employment, and factories are at full capacity
So higher demand can't be met by more supply - so firms put the prices up on those they can supply i.e Inflation
Cost-Push Inflation
Caused by a general increase in costs of production
This can come from:
Higher wages demanded by workers
Commodity prices (eg oil) increase
Home currency weakens - so imports become more expensive
Inflationary gap
If demand exceeds capacity (full employment) there is what we call... an inflationary gap
This type of Inflation can be reduced by shifting the demand curve left
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Syllabus A. Macroeconomic And Institutional Context Of Business
A1. Factors Affecting National Income
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Syllabus A. Macroeconomic And Institutional Context Of Business
A1. Factors Affecting National Income