Question

Examples of Deflation in Demand-pull, Cost-push, Exchange Rates, and Money Supply.

Answer 1

1) Deflation usually occurs during a deep recession, when there is a sustained fall in demand and output. ... In rare circumstances, rapid growth in technology may enable lower prices, whilst at the same time increasing output. This could be termed 'benign deflation' as output increases .

Deflation involves a fall in the price level – a negative rate of inflation. From a very basic standpoint, there are two main potential causes of deflation:

a)A fall in aggregate demand (AD)

b) A shift to the right of aggregate supply (AS) – i.e. lower costs of production through improved technology.

2) Cost push is relating to or denoting inflation caused by increased labour or raw material costs.Cost-Push Inflation Explained, with Causes and Examples. Cost-push inflation is when supply costs rise or supply levels fall. ... Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation. These components of supply are also part of the four factors of production.

Cost push is arising due to the following examples

a) Cost-push inflation is when supply costs rise or supply levels fall.

b) . Shortages or cost increases in labor, raw materials, and capital goods create cost-push inflation

3)   Exchange rate is the price of one currency in terms of another currency. Description: Exchange rates can be either fixed or floating. It is the floor price that must be paid irrespective of the market price.

Examples of exchange rate

Let's say the current exchange rate between the dollar and the euro is 1.23 $/€. This means that to obtain one euro, you would need 1.23 dollars. Conversely, if you were about to take a vacation to Europe, you could take $1,000 to the bank and receive €813.01.Exchange rates can be fixed or floating. If a country fixes its currency to that of another country, the exchange rate between those two currencies will not change. If a country has a floating exchange rate, however, the rate between its currency and any other currency will adjust to market conditions.

4) The money supply is the entire stock of currency and other liquid instruments circulating in a country's economy as of a particular time. The money supply can include cash, coins, and balances held in checking and savings accounts, and other near money substitutes.

Examples of money supply

The Federal Reserve measures the U.S. money supply in three different ways: monetary base, M1, and M2.

• Monetary base is the sum of currency in circulation and reserve balances (i.e., deposits held by banks and other depository institutions in their accounts at the Federal Reserve).1
• M1 is the sum of currency held by the public (i.e., currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions); traveler's checks of non-bank issuers; and transaction deposits at depository institutions. Depository institutions obtain their funds mainly through deposits from the public, such as commercial banks, savings and loan associations, savings banks, and credit unions. M1 was $3.964 trillion in November 2019 (seasonally adjusted). Of that, $1.705 trillion was currency and the rest of the amount was deposits.
• M2 includes M1 along with savings accounts, money market accounts, money market funds, and time deposits under $100,000. It does not include IRA or Keogh retirement accounts. M2 was $15.327 trillion in November 2019 (seasonally adjusted). Of that, $9.769 trillion was in savings accounts; $1.003 trillion was in money markets; $591 billion was time deposits; and the rest was M1