23 & 26

Question 1

Consumer price index (CPI)

Answer 1

A measure of price level in the economy based on the prices of a collection of representative products bought by households

Question 2

Creeping

Answer 2

A low rate of inflation (2%)

Question 3

Accelerating

Answer 3

Rise in the rate of inflation

Question 4

Hyperinflation

Answer 4

Exceptionally high rate of inflation

Question 5

Money Value

Answer 5

(nominal value) values at the prices operating at the time

Question 6

Real Value

Answer 6

Value adjusted for inflation

Question 7

Cost-Push Inflation

Answer 7

An increase in cost of production which is passed on to consumers in the form of higher prices ( - economic growth )

Question 8

Causes of cost push inflation

Answer 8

.Anticipated inflation
.Imported inflation

Question 9

Demand-Pull Inflation

Answer 9

Too much demand in economy (AD inflation unmatched by AS inflation) ( + economic growth )

Question 10

Causes of demand pull inflation

Answer 10

. Consumer boom
. Higher business confidence
. Increase in (X - M)

Question 11

Monetary Inflation

Answer 11

Rise in general level of prices (too much money in the economy)

Question 12

Drawbacks Of Inflation

Answer 12

• Reduction in (X - M) -> reduction in international competitiveness -> reduction in exports
• Unplanned redistribution of income -> borrowers (spenders) will gain -> lenders (savers) will loose
• Adaptation costs -> firms have to adapt prices for inflation -> loss of customers
• Fiscal drag -> taxes not adjusted for inflation -> income and firms pushed into higher tax bracket
• Discouragement to invest -> unanticipated inflation causes uncertainty -> lower economic growth
• Inflationary noise -> confusing price signals -> firms increase output thinking demand is higher
• Inflation causing inflation -> people & firms anticipate price rise -> consume before the rise -> price increases prematurely

Question 13

Pros Of Inflation

Answer 13

• Stimulating output -> stable inflation caused by increased demand -> optimistic firms -> economic growth
• Reduce debt -> debt / mortgage worth falls as price increases
• Reduction in unemployment -> firms reduce labour costs -> keep nominal wages constant

Question 14

Disinflation

Answer 14

a fall in the rate of inflation

Question 15

Indexation

Answer 15

adjusting variables such as wages & interest rates according to inflation

Question 16

Producer price index (PPI)

Answer 16

A measure of the price change in goods which are bought and sold by the manufacturers in the economy