Krugman Section 6 Module 33 Inflation Types Krugman Section 6 Module 33

Inflation: A general rising of the level of prices (not all P rise at the same rate)

Causes of Inflation Demand-Pull inflation Spending increases faster than production Too much money chasing too few goods Too many consumers with ready cash or expectations for spending Too many are employed causing wage inflation

Cost-Push or Supply-Side Inflation Prices rise because of input prices increase Not enough supply of goods & services Wage-push can occur as result of union strength Supply shocks may occur with unexpected increases in the price of raw materials Could cause both output and employment to decline—real income declines.