Theme 2 Flashcards
(13 cards)
Inflation
A sustained increase in the cost of living or the general price level (GPL) leading to a fall in the real
purchasing power of money.
Deflation
A fall in general price level.
Disinflation
A fall in the rate of inflation but not sufficient to bring about deflation.
The Consumer Prices Index (CPI)
The main measure of inflation used in the UK and the European Union.
CPI tracks changes in the prices of a basket of goods and services purchased by an average household. It is expressed as an index number.
Hyper-inflation
A period of high rates of inflation, usually leading to a loss of confidence in a currency.
Inflation rate
The annual rate of change of the average price of goods and services.
Purchasing power
The buying power of a unit of currency. It is inversely related to the rate of inflation.
Unit labour costs
Reflect total labour costs, including social security and employers’ pension contributions, and including the costs of self-employed labour, incurred in the production of a unit of economic output.
Appreciation
A rise in the value of a currency against others, in a freely floating exchange rate system. We can say that a currency is stronger if it has appreciated.
Depreciation/ Devaluation
A fall in the value of a currency against others, in a freely floating exchange rate system. We can say that a currency is weaker if it has depreciated/ been devalued..
Fixed exchange rate
A system in which the government / central bank intervenes in the foreign exchange market to determine the value of its currency.
Floating exchange rate
A system in which the value of a currency is determined entirely by the market forces of demand and supply
Revaluation
A rise in the value of a currency against others, in a fixed exchange rate system. We can say that a currency is stronger if it has been revalued.
