Inflation

Question 1

Inflation

Answer 1

Sustained general increase in price lvl

Question 2

Deflation

Answer 2

Sustained general decrease in price lvl

Question 3

Disinfection

Answer 3

Decrease in the rate of inflation

Question 4

Hyperinflation

Answer 4

Very high inflation lvl

Question 5

Stagflation

Answer 5

Increase/very high inflation lvl when economys in recession

Question 6

Deflationary policies

Answer 6

Policies designed to lower rate of econ growth

Question 7

Inflation rate calculation

Answer 7

Avg price / time … diff in index no. / time

(Yr 2 - Yr 1 / Yr 1 ) x 100

Question 8

CPI steps

Answer 8

1) have a basket
- representative range og g/s calc from living cost & food survey
- households record expenditure on diff g/s to calc avg

2) weighted
- prices g/s weighted based on % of income
- weighted prices added to give total weighted prices of basket

3) base Yr
- choose base year: Yr chosen as a good comparison in a series of data
- weighted basket convert into index no.

4) calculate
- index no. = (raw no. / base Yr raw no.) X 100

Question 9

CPI Cons

Answer 9

● not representatives
- don’t take into account every g/s sold in the county

● ‘avg family’
- personal inflation rate differ eg high income = holidays higher weight & low income = bus fair high weight

● no hosing cost
- don’t inclu date … lower fig than it should

Question 10

Types of inflation

Answer 10

Demand pull inflation: inflation caused by an increase in AD

Cost push inflation: inflation caused by an decrease in AS

Question 11

Demand pull inflation causes

Answer 11

• decrease interest rates
• decrease tax ( income & corporation)
• increase gov spending
• weak ex. Rate (WPIDEC)

Question 12

Cost push inflation causes

Answer 12

• increase wage rate
  -increase raw material price bc increase M price
• increase price to increase profit
• decrease gov subsidy
• increase corporation tax

Question 13

Inflation cons

Answer 13

● consumer

• erosion of savings : interest rate don’t increase at same rate as inflation … unemployed & retired lose out
• shoe leather cost : opportunity cost … c don’t kno what’s reasonable price … takes time to search for better gs - could be working

● producer

• decrease x competitiveness : if value of £ don’t change on foreign currency markets … SPICED
• menu cost : restaurant/shops/firms need to change price label & need to calc new price list
• wage spirals : Workers ask for higher pay … increase CofP … increase prices of g/s … increase pay

Question 14

Inflation pros

Answer 14

● gov
- low stable inflation 2% +/-1% : room to adjust economy If inflation is higher/lower
Eg - o.5% = increase AD
4% = decrease AD

Question 15

EVAL points

Answer 15

• CPI … internationally recognised method of calc inflation

Question 16

Good inflation

Answer 16

AS of g/s increase faster than AD … decrease price

Question 17

Bad inflation

Answer 17

AD of g/s decrease faster than any growth in AS