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Unit 10. Income, Consumption and Saving. Inflation: causes and consequences

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Unit 10. Income, Consumption and Saving. Inflation: causes and consequences IES Llu s de Requesens (Molins de Rei) Batxillerat Social Economics (CLIL ... – PowerPoint PPT presentation

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Title: Unit 10. Income, Consumption and Saving. Inflation: causes and consequences


1
Unit 10. Income, Consumption and Saving.
Inflation causes and consequences
  • IES Lluís de Requesens (Molins de Rei)?
  • Batxillerat Social
  • Economics (CLIL) Innovació en Llengües
    Estrangeres
  • Jordi Franch Parella

2
Surplus and Deficit
  • Y C I G
  • Y C G I (Total Saving Total Investment)
  • (Y C T) (T G) I (Private Saving
    Public Saving Total Investment)?
  • Private Saving is the income left after families
    have paid taxes and consumption
  • Public Saving is the revenue left after
    government has paid its spending
  • If T gt G, the government runs a budget surplus
  • If G gt T, the government runs a budget deficit

3
Causes of Inflation
  • Quantitative Theory of Money M . V P . Y
    where M is the money supply, V the velocity of
    circulation of money, P the overall level of
    prices, Y the real GDP
  • V tends to be stable over time
  • An increase in M leads to an increase in P
  • Then, inflation is always and everywhere a
    monetary phenomenon

4
Causes of Inflation
5
Causes of Inflation
6
Causes of Inflation
7
Consequences of Inflation
  • A decrease in the purchasing power of money
  • It hurts the creditors and benefits the debtors
    --gt arbitrary redistribution of wealth
  • Unemployment
  • A decrease in the international competitiveness
  • Incorrect allocation of resources

8
Consequences of Inflation
  • Shoeleather costs, menu costs
  • Inflation increases the tax burden and
    exaggerates the capital gains and the profits --gt
    decapitalization of firms
  • It hurts saving for many reasons it hurts
    creditors, the after-tax real interest rate falls
  • An uncontrolled inflation can turn itself in
    hyperinflation ( the death of the society)?
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