ECON 2D03 Lecture Notes - Lecture 10: Risk Aversion, Market Power, Hyperinflation
Document Summary
Not harmed by inflation (income increases with price level) Some people unchanged: social security beneficiaries (adjusted to inflation) Some people-gain: workers protected by powerful unions- incomes rise more rapidly than the average price level. Some people- lose: retirees on private pensions, workers in a long term labour contract, welfare recipients; civil servants, professors at public colleges and universities. If inflation is unanticipated: borrowers gain, lenders lose. Uncertainty: inefficiency- from uncertainty about prices, risk aversion- prefer not to undertake risks. Cost associated with: reprinting menus, revisiting cost schedules, adjusting telephones, vending machines, etc. International effects: price higher than in other countries, increasing imports, reducing exports, inflation- spread to other countries. Occurs when any sectors of the economy increase their demand for goods and services. Occurs as a result of increases in the costs of production. Occurs when businesses use market power to restrict output: pushes up prices and profits. One policy will reduce unemployment while increasing inflation, and vice versa.
