Causes of Inflation
1. Demand Pull- Inflation that occurs when the total demand for goods and services exceed the economy's capacity to produce those goods. Increase in aggregate demand (shift right). An increase in demand causes higher prices (inflation)
2. Cost Push Inflation- inflation caused by an increase in the cost of production or input levels. Decrease in aggregate supply.(shift left). A decrease in supply causes higher prices (inflation)

Types of Cost Push Inflation
  1. Wage Push - prices increases will caused an inflation
  2. Profit Push - (monopolies and oligopolies) Intentionally reduce supply to drive up prices.
  3. Import Push - Ex. Oil. If price for oil increases it cost more to transport goods


who loses and gains from an unanticipated inflation


Losers
Creditors Debtors
Taxpayers Producers
People on fixed income Owners of real assets
Owners of financial assets-hiding money in mattress Buyers of future contracts
sellers of future contracts
Winners
Debtors
Government (bracket creep)
Producers
Owners of real assets
Buyers of future contracts

Cost of Inflation
Increase in income inequality
Less exports and more imports
shoe leather costs(opportunity cost of holding cash)
Menu costs (costs to change signage)
Reduction in investment
Business cycles

Stephanie Powers- Class notes, Donald School of Business
Stephanie Powers-class notes, Red Deer College