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Types of Inflation Monetary Policy
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Inflation: A general rising of the level of prices (not all P rise at the same rate)
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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
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Cost-Push or Supply-Side Inflation
Prices rise because of rise in per-unit production costs 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 Political cuts in supply Could cause both output and employment to decline—real income declines.
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