deflation

Question 1

define deflation

Answer 1

persistent fall in prices in an economy

Question 2

what type of deflation is demand-side deflation?

Answer 2

malignant/bad deflation

Question 2

define malignant deflation

Answer 2

fall in price levels, output and employment by a steep fall in ad

Question 3

define benign deflation

Answer 3

fall in price level by an outward shift in sras

Question 4

what type of deflation is supply-side deflation?

Answer 4

good/benign

Question 5

what are 4 supply-side causes of deflation?
good

Answer 5

1. improved labour productivity
2. tech advances
3. fall in wages
4. strong exchange rate causing import prices to fall

Question 6

what are some demand-side causes of deflation?
bad

Answer 6

1. people loosing jobs
2. delaying buying “big-ticket” items

Question 7

draw a diagram indicating malignant demand side deflation

Answer 7

inward shift in ad

Question 8

draw a diagram indicating benign supply side deflation

Answer 8

outward shift in lras or sras

Question 9

what policies can we use to avoid deflation?

Answer 9

1. low interest rates and quantitive easing- expand credit
2. use of fiscal stimulus’s - expansionary
3. higher tax on savings

Question 10

what are some impacts of deflation?

Answer 10

1. falling wages
2. real value of debt goes up- harder to repay
3. decreased spending/investment

Question 11

is unanticipated deflation beneficial or dangerous?

Answer 11

beneficial

Question 12

is anticipated deflation beneficial or dangerous?

Answer 12

dangerous

Question 13

why is anticipated deflation dangerous?

Answer 13

leads to deflation spiral- falling prices lead to lower consumer demand, causing further price drops, rising unemployment, and increased debt burdens

Question 14

in the short term is supply-side deflation anticipated or unanticipated?

Answer 14

unanticipated

Question 15

in the long term is demand side deflation anticipated or unanticipated?

Answer 15

anticipated

Question 16

when was the last deflation crisis in the uk?

Answer 16

2015
-0.1% due to a plunge in oil prices