2.1 - Measures of Economic Performance Flashcards
Limitations of CPI as a measure of the rate of inflation
- Does not include housing costs, which are a significant item of expenditure for UK households
- Some people do not have representative spending patterns and are affected more/less than the CPI suggests
- Only updated once a year so sudden changes and trends in spending patterns are not reflected
- Households might not respond accurately to the survey
What is the Office for National Statistics’ preferred measure of inflation?
CPIH - Consumer Price Index including housing costs
Causes of demand pull inflation (5)
A decrease in interest rates
A rise in the level of business and consumer confidence
An increase in government spending
Exports rising relative to imports
Depreciation of the exchange rate
Causes of cost push inflation (5)
A rise in oil prices and/or raw material prices
An appreciation in the exchange rate
A rise in taxes on businesses
An increase in minimum wage/wages
Increased regulations that will increase operating costs
What is Inflation?
The sustained increase in the general price level in the economy over a period of time
What is deflation?
An inflation rate below zero
What is disinflation
When the inflation rate is falling but it is still above zero
What is the retail price index?
Alternative measurement of inflation
Includes housing costs such as mortgage repayments and council tax
CPI Definition
The Consumer Price Index measures the overall change in consumer prices based on a representative basket of goods and services over time.
Underemployment definition
The underemployed are those who have a job, but their labour is not used to its full
productive potential. Those who are in part-time work, but are looking for a full-time
jobs are underemployed.
What is demand deficiency/cyclical unemployment
This is caused by a lack of demand for goods and services, and it usually occurs
during periods of economic decline or recessions. Firms are either forced to close or
make workers redundant
What is real wage inflexibility
When wages above the market equilibrium cause unemployment. For example if there is a minimum wage, there will be a surplus of labour
