2.4 Inflation

Question 1

Define inflation

Answer 1

The general and sustained increase in price levels across the economy over a period of time

Question 2

Define disinflation

Answer 2

A fall in the rate of inflation

Question 3

Define deflation

Answer 3

a fall in average level of prices

Question 4

Define hyperinflation

Answer 4

A situation in which inflation reaches extreme or excessive rates

Question 5

What is the inflationary target of the Bank of England

Answer 5

about 2%

Question 6

What does the Consumer Price Index (CPI) measure

Answer 6

The change in price of a basket of goods and therefore the inflation rate

Question 7

What does Retail Price Index (RPI) measure

Answer 7

The change in costs in an economy including housing costs

Question 8

Causes of inflation

Answer 8

Cost-push inflation, Demand-pull inflation

Question 9

Costs of inflation

Answer 9

Lower purchasing power, erosion of savings, lower export competitiveness, wage/consumer price spirals, fiscal drag, inflationary noise

Question 10

Benefits of inflation

Answer 10

Workers get higher wages, consumption is natural, firms are encouraged to increase output, can keep unemployment low in recessions, reduces real value of debt, improvement in govt finances