Vocab
Deflation
Unemployment that occurs when the demand for labor in certain industries changes on a seasonal basis because of variations in needs.
Seasonal Unemployment
Inflation caused by increases in aggregate demand
Demand Pull Inflation
The redistribution of incomes of certain groups in a economy to other groups.
Redistribution effect
As purchasing power falls, its harder to repay debts.
Increase in the real value of debt
Consumer Price Index
Unemployment that occurs during the downturns of the business cycle.
Cyclical Unemployment
Inflation caused by increases in costs of production or supply-side shocks.
Cost-push Inflation
The ability to accurately predict what inflation will be in the future
Uncertainty
The signalling and incentive function of prices are unable to work effectively, leading to this.
Inefficient resource allocation
The number of people who are employed + the number of people of working age who are unemployed
Labor Force
Structural Unemployment
The two reasons by deflation rarely occurs
Wages of workers do not fall, Price Wars
Savers will be negatively impacted by inflation as they lose if they receive no interest on savings, which creates an incentive on not saving.
Effect on Saving
Firms are not able to pay their debts, leading to this
Risk of bankruptcies
The decrease in the rate of inflation
Disinflation
Unemployment that occurs when the workers are between jobs (Searching for job, Fired from Job)
Frictional Unemployment
Business pessimism can cause this shift in the AD-AS model, which will cause deflation
Decrease in aggregate demand
When the price level in a country increases more rapidly than the price level in other countries whom they trade with, its exports becomes more expensive, and imports become more cheap to domestic buyers.
International Export Competitiveness
People start spending less because of deflation, leading to a harder time for policy makers
Policy Ineffectiveness
Consumers postpone spending as they expect that prices will continue to fail.
Deferred Consumption
Another name for Cyclical Unemployment
Demand-deficient unemployment
a decrease in input prices can cause this shift on a AD-AS model, which causes deflation
Increase in aggregate supply
High Inflation does not favor Economic Growth
Bankruptcies will make banks and financial institution collapse, which can lead to this
Financial Crisis