Inflation

Cost-push

increasing production costs(Rent, interest, raw materials) Supply side.

1.             Wage costs - trade unions push up w/o increases in productivity.

2.             Import prices -(oil), high with fixed Erate

3.             Exchange rates - 4% devaluation +1%.

4.             Mark-up pricing-prices more sensitive to production costs

a.        Controlling and increasing interest

b.        MTFS

c.        Reducing expectations

d.        reduce Mo

e.        Reduce lending

f.         direct intervention

1.             Statutory - govn freezes wages and prices

2.             Voluntary

Multicausal

Demand - pull

aggregate demand exceeds value of output at constant prices at full employment

C+I+J line above I=E-Multiplier.

1.        Availability of skilled labour(alright 10%

2.        capital utilisation(now high40%, if max power, maybe shows new efficiency)

Keynesian-demand brings about the increase in money supply

Monetarist-money supply increase which causes rise in demand

a.        reduce expenditure

b.        raise taxes

Monetary inflation

1.             low interest

2.             no lending restrictions

3.             too much money-gold find, Treasury bills

MxV=PxT (V and T const)

View-Mo and inflation related, but in 1980 inflation up, M down

If Iup-less Mo, borrowing, house prices, financial asset prices, consumption, income redistribution

1.             Bad for growth (monetarist), increases uncertainty and discourages savings and investment

2.             BoP-inflation in other countries counts, imports cheap, but effect depend on elasticities (sum big-good for BoP)

3.             Incomes distribution to profit earning, not fixed earning pensioners.

4.             Employment-controversies(Philips)

5.             Real value of savings falls