aos2 inflation

Question 1

inflation

Answer 1

prices rising over time

Question 2

goal of low inflation

Answer 2

general level of prices are increating at a rate of 2-3% on average over time to maintain purchasing power

Question 3

calculate low inflation

Answer 3

old- new divided by new times 100 (if quarter x )

Question 4

disinflation

Answer 4

prices are still increasing but at a reduced rate (4%-3%)

Question 5

deflation

Answer 5

prices decreasing over time (e.g excess stock)

Question 6

cost inflation

Answer 6

less favourable supply factors increasing production cost. (firms prices increase to protect profit) (e.g up in electricity price or raw material price)

Question 7

demand inflation

Answer 7

strong demand factors increasing AD/spending causing shortafes and increasing prices (e.g cosumer/business confidence, dispoble income, population) (ad>as)

Question 8

underlying inflation

Answer 8

removes the impact of volatile price changes for an accurate indication of inflation’s impact on the average person

Question 9

headline inflation

Answer 9

is calculated by changed in price of all goods and services consumers purchase

Question 10

distinguish underlying and headline

Answer 10

overall, underlying is more accurate as it excludes generally volatile items such as petrol whereas healine is the raw rate.

Question 11

inflation too high on living standards

Answer 11

1. erodes purchasing power of households (income worth less and things cost more) cant satisfy needs and wants therefor decreasing living standards
2. business have higher production cost causing cost inflation. this leads to unemployment and the continue of increasing prices.

Question 12

inflation too low on living standerds

Answer 12

1.businesses see low inflation as weak growth for profit and threrfor have less incentive to produce. leading to higher unemployment, lower production.
2.consumers will delay consumption and decisions are less urgent as prices remain relatively the same