Theme 2: Inflation

Question 1

Whats inflation

Answer 1

Inflation is a general sustained rise in the price level of an economy

Question 2

Whats disinflation

Answer 2

Disinflation is when the rate of inflation is decreases in in an economy, which is a worry as it could lead to deflation.

Question 3

whats deflation

Answer 3

Deflation is a sustained general decrease in the price level of an economy which normally means that the output in an economy is decreasing as people are hesitant to spend causing reduced economic growth

Question 4

What 2 methods are there of calculation inflation

Answer 4

RPI (retail price index) and CPI (consumer price index)

Question 5

How do you calculate CPI and RPI

Answer 5

CPI is the weighted mean price of a basket of 650 goods and services

RPI is CPI + housing costs and council tax etc

Question 6

What is a wage price spiral

Answer 6

When workers ask for an increase in wages due to inflation, so firms in turn raise prices in order to afford the higher wages causing a spiral

Question 7

What are the causes of Demand pull inflation

Answer 7

• When consumer spending rises excessively raising the price level

Question 8

What are the causes of cost push inflation

Answer 8

Caused by rising cost for suppliers

• Increase in wages
• Rise in import cost
• Raise in price to increase profit margins
• Raised tax rates