2.1.2 - Inflation

Question 1

Definition of inflation

Answer 1

Sustained rise in the general price level

Question 2

Definition of Deflation

Answer 2

A fall in the general price level

Question 3

Definition of Disinflation

Answer 3

Rise in the general price level, at a slower rate

Question 4

What is demand pull inflation

Answer 4

Inflation caused by a increase in AD
Spending is above the sustainable level
e.g an decrease in interest levels, people start spending

Question 5

What is cost push inflation

Answer 5

Inflation when AS decreases
Costs of production rise or producers are less willing and able to produce less at any given price
-> causes an increase in the price level

Question 6

What is the CPI

Answer 6

Measure of inflation, ignoring MIR

Question 7

What is the RPI

Answer 7

Measure of inflation, including MIR

Question 8

What are the limitations of the CPI in measuring inflation

Answer 8

Doesn’t show the people not represented by the basket of goods -> pensioners
Small sample isn’t representative

Question 9

Why is the RPI different

Answer 9

Takes into account MIR which illustrates the true cost of living

Question 10

What is the impact of inflation on consumers

Answer 10

1. increase in cost of living
2. Destroys value of savings, need to save more to reach goal
3. Decreases real income -> less purchasing power -> consumption decreases

4.