2.4 - inflation

Question 1

Inflation

Answer 1

A sustained rise in the PL

Question 2

Disinflation

Answer 2

Rate of inflation falls
Prices are still rising but at a slower rate

Question 3

Deflation

Answer 3

Price level falls - inflation is negative

Question 4

Hyperinflation

Answer 4

Rapid rising of inflation
Defined by more than 50% in a month

Question 5

Low inflation leads to

Answer 5

Stability
Increased investment
Increased competitiveness of exports

Question 6

Stable inflation

Answer 6

Little changes in prices / predictable rise in prices

Question 7

Consumer Price Index

Answer 7

Measures consumer’s purchasing power compared to rising prices
Basket of goods weighted - price changes measured
Weight of good x price change

Question 8

Retail price index

Answer 8

Same as CPI but broader
Includes mortgage payments / housing benefits
Higher than CPI

Question 9

Demand Pull inflation

Answer 9

Increased demand not matched by producers
Prices are increased to try and decrease demand
AD rises faster than AS = inflation

Question 10

Cost push inflation

Answer 10

Rising costs of raw materials / wages lead to firms increasing prices