Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics unit 2 > 11)inflation > Flashcards

11)inflation Flashcards

0
Q

What does deflation mean

A

A sustained decrease in the average price level over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
1
Q

What does inflation mean

A

Sustained increase in the average price level over a period of time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the target for inflation given to the bank of england

A

2% +/-1 CPI

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the cost of inflation to individuals

A

❎rising prices reduce the purchasing power of money

❎shoe leather cost

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Why is rising prices reducing the purchasing power of money, a cost of inflation to individuals

A

⚫️a problem for
➡️people with low fixed incomes: pensioners, students
➡️those who have saved money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why is shoe leather cost a cost of inflation to individuals

A

⚫️consumers have to shops to find the best value goods
➡️more effort during period of frequently changing prices
➡️involves opportunity costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the cost of inflation for firms

A

➡️ loss of international competitiveness

➡️business planing becomes more difficult

➡️menu costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why is loss of international competitiveness a cost of inflation for firms

A

➡️uk exporters will find their products to be more expensive in international markets

➡️sales may be lost to competitors operating in low inflation countries

➡️will lead to less exports
➡️reduced AD

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Why is business planing becoming more difficult a cost of inflation for firms

A

➡uncertainty over future prices and cost of production, discourages businesses from investing

➡️less investment =
➡️reduced AD in short run
➡reduced LRAS/PPF in the long run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Why is menu cost a cost of inflation for firms

A

➡️businesses have to frequently publish prices during a time of rapid inflation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the benefits of low inflation

A

➡️business confidence increases

➡️maintains the purchasing power of money

➡️maintains the competitiveness of Uk exports

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why is the increase of business confidence a benefit of low inflation

A

➡️firms are able to plan for the future as they know what the cost of production is going to be

⚫️increases investments
➡️shifts AD curve to the right in the short run
➡️shifts LRAS and PPF to r
The right in the long term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why is maintaining the purchasing power of money a benefit of low inflation

A

⚫️those in fixed incomes, like pensioners and students
➡️level of consumption in the economy will be maintained
➡️living standards will be maintained

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Why is maintaining competitiveness of uk exports a benefit of low inflation

A

⚫️low inflation will mean prices of uk exports will not rise tok quickly
➡️so will not loose competitiveness against nations goods and services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What does CPI mean

A

➡️an index of consumer prices

➡️calculated by the ONS, using data from real economy

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the 3 way CPI can be measured

A

➡️ basket

➡️family expenditure survey

➡️weighted average

16
Q

How does the basket calculates CPI

A

➡️deciding on a representative basket of goods and services, consumers buy

➡️updated once a year
➡️to keep it representative of the things we buy

17
Q

How is CPI calculated by the family expenditure survey

A

➡️a monthly survey of the goods in the basket

➡️collects personal diaries of spending be families and individuals in the UK

➡also uses questionnaires and interviews

18
Q

How is CPI calculated by the weighted average

A

➡️each price is weighted according to the proportion of income spent on each item

➡️bread, milk -high weighted average in basket
➡️car- lower weighted average in baske

19
Q

What does RPI mean

A

➡️another index of general consumer prices

➡️includes mortgage payments

20
Q

What is demand pull inflation

A

➡️excessive growth in AD causes economy to have an increase in price level

➡️can result into an increase in any component of AD=C+I+G+(x-m)

➡️e.g. Income tax cut will increase consumption resulting in demand pull inflation

21
Q

What is a cost push inflation

A

➡️AS curve shifts left
➡️due to increase in the cost of the factors of production

➡️increase in oil prices
➡️increase in wheat prices
➡️increase in wages

22
Q

What are the causes of cost push inflation

A

➡️rising input costs

➡️rising labour costs

➡️higher import prices

➡️increases in indirect taxes

23
Q

Give an example of rising input costs

A

➡️rising commodity prices

➡️oil

24
Q

Give an example of rising labour costs

A

⚫️workers pay rising
➡️due to skill shortages
➡️or increase in minimum wage

25
Q

Give an example of higher import prices

A

⚫️an exchange rate depreciation

➡️increases price of imports

26
Q

Give an example of an increase of indirect taxes

A

➡️national insurance will increase the costs of producers

Economics unit 2 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions