chapter 19 - inflation

Question 1

cost push

Answer 1

increases price in factor material inputs e.g. oil which impacts on AS

May affect wider economic factors outside the country

Question 2

demand pull

Answer 2

AD increasing consumption

Question 3

monetary

Answer 3

over supply of money

Question 4

what is inflation measured by

Answer 4

a WEIGHTED basket of goods - measures price change over time

Question 5

RPI - retail price index

Answer 5

a weighted basket of goods

Question 6

CPI - consumer price index

Answer 6

a weighted basket of goods excluding council tax and mortgage interest payments

Question 7

why is inflation an issue for the government, business and the wider economy ( 9 )

Answer 7

1. uncertainty
2. makes uk exports incompetitve
3. reduces consumer purchasing power
4. real incomes may fall
5. wage spirals
6. menu costs / shoe leather costs
7. money can become devalued
8. borrowers - repay less over time
9. savers - earn less real terms

Question 8

why is negative inflation a problem

Answer 8

consumers may put off spending

Question 9

nominal values

Answer 9

unadjusted raw data not accounting for inflation

Question 10

real values

Answer 10

and adjusted figure for inflation

Question 11

real value equation

Answer 11

nominal value - inflation

Question 12

index numbers

Answer 12

a way of simplifying big numbers or series data

Question 13

index number equation

Answer 13

price in current year ÷ price in base year × 100