Inflation Flashcards
Inflation definition:
sustained increase in the general price level
monetary inflation definition:
Too much money supply from banks and govt. If banks lend out too much money or central banks prints too much money it will lose its value
Demand pull inflation (definition + 2)
- Too much total demand for all goods and services (AD) cause inflation
- Can be caused by too much money or consumer confidence in the economy
- Usually appears during economic expansion/boom
Cost push inflation (definition)
- A rise in prod costs (business taxes, wages or imported inflation) for firms causes inflation
Imported inflation definition
If import prices increasem firms that import raw material have higher prod costs. To maintain profit levels, they have to increase prices
Price indices (2)
Price indices = Price indexes: show the change in general price level in percentage terms over time
- Calculate the changes in the price of a very large “shopping basket” of the product, bought by consumers
What are the 2 main price indexes?
Retail Price Index (RPI) & Consumer Price Index (CPI)
RPI includes mortage interest payments
CPI includes university accomodation fees
Consumer Price Index (CPI)
CPI measures the price of goods and services consumed by the average household
Problems of CPI (4)
- Not every household spends the same
- Changes in spending
- Changes in population
- New products and services developed
Mild inflation definition
Between 0% and 2-3%
Creeping inflation definition
Inflation rates that keep on increasing over time e.g. Y1=3%, Y2=5%, Y3=8%, Y4=11% etc.
Hyperinflation definition
Inflation rates > 100%
Disinflation definition
Inflation at decreasing rates e.g. Y1=5%, Y2=4%, Y3=3%
deflation definition
A sustained decrease in the general price level
benign deflation
lower prices due to lower costs of prod
malign deflation
lower prices due to lack of AD (often happens during a recession)
