2.1.2 Inflation

Question 1

Consumer price index (CPI)

Answer 1

It is the UK government preferred measure of inflation, it measures the changes in the average cost of living for a representative household and is a weighted price index

Question 2

Cost push inflation

Answer 2

Inflation caused by rising costs of production either domestically or from importing raw materials at higher prices due to exchange rate depreciation

Question 3

CPIH inflation

Answer 3

A measure of UK inflation that includes the owners housing costs. These are the costs of housing services associated with awning, maintaining and living in one’s own home.

Question 4

Creeping inflation

Answer 4

Small rises in the general price level over a long period, low positive rate of inflation

Question 5

Deflation

Answer 5

A persistent fall in the general price level of goods and services shown by a negative rate of inflation

Question 6

Demand pull inflation

Answer 6

Caused by an excess of AD (aggregate demand) over AS (aggregate supply)

Question 7

Disinflation

Answer 7

A fall in the rate of inflation but not sufficient to bring about deflation. Prices are still rising but at a slow rate.

Question 8

Inflation

Answer 8

A sustained increase in the general price level for goods and services

Question 9

Inflation expectations

Answer 9

The rate of increase in consumer prices expected by consumers. Expectations can then influence spending and saving decisions and also wage bargaining.

Question 10

Inflation target

Answer 10

The bank of England has a CPI inflation target which is currently 2%

Question 11

Inflationary pressures

Answer 11

demand and supply side pressures that can cause a rise in the general price level.

Demand pull inflationary pressure is greatest when actual GDP exceeds potential GDP causing a positive output gap.

Cost push inflationary pressure can arise from increases in unit wage costs, rising import prices and an increase in the prices of raw materials, fuel and components used in production

Question 12

Money supply

Answer 12

The entire quantity of a countries commercial bills, coins, loans and credit

Question 13

Price stability

Answer 13

occurs when there is a law positive education rate between 1 – 3%.
Price changes that do occur have a little impact on day-to-day decisions of people and businesses

Question 14

Price stability

Answer 14

occurs when there is a law positive education rate between 1 – 3%.
Price changes that do occur have a little impact on day-to-day decisions of people and businesses

Question 15

Purchasing power

Answer 15

The buying power of a unit of quarantine. It is inversely related to the rate of inflation.

Question 16

Relative deflation

Answer 16

An economy with an inflation rate which is lower than comparable economies.
Overtime, a law relative rate of inflation can lead to improved price competitiveness

Question 17

Stagflation

Answer 17

A combination of slow growth and rising inflation

Question 18

Wage price spiral

Answer 18

Where workers bid for higher wages because they have seen their real income eroded by rising prices

Answer 19

The weights are meant to reflect the relative importance of the goods and services as measured by their shares in the total consumption of households.

they are used when calculating a weighted consumer price index E.G. basket of goods from PPP