Economics 1022A/B Chapter Notes - Chapter 28: Capital Market, Nominal Interest Rate, Aggregate Demand
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ECON 1022A/B Full Course Notes
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In the long run, inflation is monetary if the quantity of money grows faster than potential gdp. In the short run, inflation can be triggered by many factors where real gdp and price level interact. Inflation that results from an increases in aggregate demand. Can be triggered by any of the factors than change aggregate demand, such as : increase in the money supply, increase in government expenditures (fiscal policy, increase in exports, tax cut, decrease in interest rate. For inflation to proceed, aggregate demand must persistently increase. Only way that aggregate demand can persistently increase is if quantity of money persistently increases. Inflation that results from an increase in costs. The two main sources of increases in costs are an increase in wage rates, and an increase in the in prices of raw materials (cost of producing the good) With a problem like this, the government/boc usually steps in to boost aggregate demand.