Inflation. Inflation in practice Inflation Inflation rates in selected industrial countries UK.

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Presentation transcript:

Inflation

Inflation in practice Inflation

Inflation rates in selected industrial countries UK

EU15 Inflation rates in selected industrial countries

UK EU15 USA Inflation rates in selected industrial countries

UK EU15 Japan USA Inflation rates in selected industrial countries

UK EU15 Japan USA OECD Inflation rates in selected industrial countries

Aggregate demand, aggregate supply and the price level Aggregate demand, aggregate supply and the price level Inflation

O Price level National output Aggregate demand

O Price level National output AD Aggregate demand

O Price level National output Aggregate demand

O Price level National output AS Aggregate supply

O Price level National output AS AD Aggregate demand and aggregate supply

O Price level National output AS AD PePe Aggregate demand and aggregate supply

O Price level National output AS AD PePe P2P2 a b Aggregate demand and aggregate supply

Demand-pull and cost-push inflation Demand-pull and cost-push inflation Inflation

O Price level National output AS AD 1 P1P1 Q1Q1 Demand-pull inflation

O Price level National output AS AD 1 P1P1 Q1Q1 AD 2 Demand-pull inflation

O Price level National output AS AD 1 P1P1 Q1Q1 AD 2 P2P2 Q2Q2 Demand-pull inflation

Cost-push inflation O Price level National output AS 1 AD P1P1 Q1Q1

O Price level National output AS 1 AD P1P1 Q1Q1 AS 2 Cost-push inflation

O Price level National output AS 1 AD P1P1 Q1Q1 AS 2 P2P2 Q2Q2 Cost-push inflation

The interaction of demand-pull and cost-push inflation The interaction of demand-pull and cost-push inflation Inflation

The interaction of demand-pull and cost-push inflation O Price level National output AS 1 AD 1 P1P1

O Price level National output AS 1 AD 1 P1P1 AS 2 AD 2 P2P2 The interaction of demand-pull and cost-push inflation

O Price level National output AS 1 AD 1 P1P1 AD 2 P2P2 AS 3 AD 3 P3P3 AS 2 The interaction of demand-pull and cost-push inflation

The interaction of demand-pull and cost-push inflation: (a) an initial increase in aggregate demand The interaction of demand-pull and cost-push inflation: (a) an initial increase in aggregate demand Inflation

Initial demand-pull inflation O National output Price level AS short run AD P0P0 a

O National output Price level AS AD P0P0 AD 1 P1P1 a b Initial demand-pull inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b AD 2 P2P2 c Initial demand-pull inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b AD 2 c Subsequent supply response AS 1 P2P2 P3P3 d Initial demand-pull inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b AD 2 c Subsequent demand response AS 1 d P2P2 P3P3 AD 3 P4P4 e Initial demand-pull inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b AD 2 c AS 1 d P2P2 P3P3 AD 3 P4P4 e Subsequent supply response AS 2 f P5P5 Initial demand-pull inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b AD 2 c AS 1 d P2P2 P3P3 AD 3 P4P4 e AD 4 Subsequent demand response AS 2 f P5P5 g P6P6 Initial demand-pull inflation

The interaction of demand-pull and cost-push inflation: (b) an initial reduction in aggregate supply / increase in aggregate costs The interaction of demand-pull and cost-push inflation: (b) an initial reduction in aggregate supply / increase in aggregate costs Inflation

Initial cost-push inflation O National output Price level AS AD P0P0 a

O National output Price level AS AD P0P0 P1P1 a b AS 1 Initial cost-push inflation

O National output Price level AS AD P0P0 P1P1 a b c AS 1 P2P2 AS 2 Initial cost-push inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b c AS 1 d P2P2 P3P3 Subsequent demand response AS 2 Initial cost-push inflation

O National output Price level AS AD P0P0 AD 1 P1P1 a b c AS 1 d P2P2 P3P3 P4P4 e Subsequent supply response AS 2 AS 3 Initial cost-push inflation