Theme 2 - 5 Flashcards
(19 cards)
What is Anticipated Inflation?
Inflation that economic actors can predict and plan for.
Anticipated inflation allows businesses and consumers to make informed financial decisions.
Define Base Year in economic terms.
A reference year in which the price index is set to 100 for comparison in future calculations.
The base year provides a benchmark for measuring inflation over time.
What does Consumer Price Index (CPI) measure?
A measure of the price level used across the European Union and by the Bank of England to assess inflation.
CPI is commonly used to assess the cost of living.
What is CPIH?
A version of CPI that includes owner-occupier housing costs and council tax.
CPIH provides a broader measure of inflation affecting households.
What causes Cost-Push Inflation?
Increased costs of production, such as higher wages or raw material prices.
Cost-push inflation is often linked to supply chain disruptions.
Define Deflation.
A sustained general fall in prices (or the average price level) across an economy.
Deflation can lead to decreased consumer spending and economic stagnation.
What is Demand-Pull Inflation?
Inflation caused by excess demand in the economy.
This type of inflation occurs when demand outstrips supply.
Fill in the blank: Growth of Money Supply is a cause of inflation where the money supply grows faster than the _______.
real output.
This imbalance increases demand and pushes up prices.
What is Hyperinflation?
Extremely high and typically accelerating inflation, often leading to the collapse of a currency’s value.
Hyperinflation can result from a loss of confidence in a currency.
Define Indexation.
Adjusting wages, pensions, or interest rates in line with inflation to maintain purchasing power.
Indexation helps to protect income against inflation.
What is Inflation?
A sustained general rise in prices (or the average price level) across an economy.
Inflation erodes purchasing power over time.
What do Interest Rates represent?
The cost of borrowing money, often adjusted by the Bank of England to control inflation.
Interest rates influence consumer and business spending.
What is the Monetarist Theory of Inflation?
The theory that inflation is always caused by excessive growth in the money supply.
This theory emphasizes the role of central banks in controlling inflation.
What is a Price Index?
A statistical measure used to track the changes in the price level of goods and services over time.
Price indices are essential for measuring inflation.
Define Real Wages.
Wages adjusted for inflation, reflecting the actual purchasing power of earnings.
Real wages provide a more accurate picture of economic well-being than nominal wages.
What is the Retail Prices Index (RPI)?
A measure of the price level used in the UK for over 60 years, often used for indexing benefits and train fares.
RPI has been criticized for its methodology compared to CPI.
What does Stagflation refer to?
A situation where inflation is high but economic growth is slow or stagnant, often leading to higher unemployment.
Stagflation poses significant challenges for policymakers.
What is Unanticipated Inflation?
Inflation that is unexpected, making planning and decision-making more difficult for consumers and firms.
Unanticipated inflation can lead to uncertainty in the economy.
Define Weighted Basket of Goods.
The collection of consumer goods and services used to calculate inflation, with each item weighted based on typical spending patterns.
This approach helps to reflect the actual consumption habits of households.
