T2 Wk 5 - Macro Objectives

Outline the difference between disinflation and deflation

• Disinflation is a decrease in the rate of inflation, but prices of goods and services are still increasing.

  Deflation is a negative rate of inflation. Prices of goods and services are decreasing.

• Disinflation is a negative rate of inflation. Prices of goods and services are decreasing.

  Deflation is a decrease in the rate of inflation, but prices of goods and services are still increasing.

• Disinflation is an acceleration in the inflation rate.

  Deflation is a deceleration in the inflation rate.

• Disinflation is prices of goods and services is decreasing but slower than the previous period.

  Deflation is an increase in the prices of goods and services, but slower than the previous period.

The two causes of inflation

• Cost-Push (caused by costs of production increasing). SRAS shifts left.

  Demand Pull (caused by an AD component increasing. AD shifts right).

• Cost-Pull (caused by costs of production decreasing). SRAS shifts right.

  Demand Push (caused by an AD component increasing. AD shifts right).

• Cost-Pull (caused by costs of production increasing). SRAS shifts left.

  Demand Pull (caused by an AD component decreasing. AD shifts left).

• Cost-Push (caused by costs of production decreasing). SRAS shifts right.

  Demand Push (caused by an AD component increasing. AD shifts left)

Types of Unemployment

• Structural - skills mismatch

  Frictional - In between jobs and the labour force

  Seasonal - labour demand fluctuates based on weather and time of year.

  Cyclical - labour demand and economic activity.

• Structural - In between jobs and the labour force

  Frictional - labour demand fluctuates based on weather and time of year.

  Seasonal - Profits and economic activity.

  Cyclical -

• Structural - labour demand and economic activity.

  Frictional - skills mismatch

  Seasonal - labour demand fluctuates based on weather and time of year.

  Cyclical - Profits lower creating unemployment

Business Cycle Phases

• Expansion

  Contraction

  Downturn

  Recovery

  Boom

• Inflationary Gap

  Recessionary Gap

  Full Employment

• Peak

  Trough

  Downswing

  Slowdown

Analyse the following data

• Downturn caused by a decrease in AD from 2021-2023

• Cost Push Inflation, SRAS would shift left across 2021-2023

• Economic Boom caused by AD increasing 2021-2023. Demand Pull Inflation

• Recovery, AD decreases on the AD/AS model from 2021-2023