Inflation

Question 1

What is aggregate demand?

Answer 1

Aggregate Demand- Total demand in the economy.

Question 2

How do you work out aggregate demand?

Answer 2

Consumption+ Investment+ Government spending+ (exports-imports)

Question 3

What is aggregate supply?

Answer 3

Aggregate Supply- The total output produced in an economy.

Question 4

What is inflation?

Answer 4

A sustained increase in the general price level of goods and services in an economy over a period of time.

Question 5

What is consumer price index?

Answer 5

A measure of the general price level (excluding housing costs)

Question 6

What is retail price index?

Answer 6

Retail Price Index- Measure of general price level (including house prices and council tax)

Question 7

What is aggregate demand?

Answer 7

Inflation caused by too much demand in the economy, relative to supply

Occurs when aggregate demand increases

Question 8

What is cost-push inflation?

Answer 8

Inflation caused by too much demand in the economy, relative to supply

Occurs when aggregate demand increases

Question 9

What is deflation?

Answer 9

A fall in average price level and a period where level of aggregate demand is falling.

Question 10

Why is low inflation a good thing?

Answer 10

If consumer prices are allowed to fall consistently…

Consumers learn to hold off their purchases to wait for a better deal. This leads to a reduction in aggregate demand and a faltering economy.

Beneficial for borrowers- repay their loans with money that is less valuable than the money they borrowed