3.4 Price Stability

Question 1

Causes of inlfation

Answer 1

Cost-push and demand-pull

Question 2

Effect of economic growth on inflation

Answer 2

If it increases, there is an increase for goods and services causing price levels to increase

Question 3

Effect of unemployment on inflation

Answer 3

Low unemployment means more income -> more spending-> price level increases
High inflation will also mean unemployment oncreases as production price increases

Question 4

Effect of the distrubution of income and wealth on unemployment

Answer 4

Can reduce the income received by savers and pensioners and those on beneifts -> increases the inequality gap

Question 5

Effect of a healthier balance of payments on inflation

Answer 5

Increase in inflation causes prices of goods and services to increase which means that they are less competitive overseas which means exports will fall

Question 6

Effects of inflation on consumers

Answer 6

Consumer confidence - when inflation is high, cost of goods and services are higher which means consumers can afford less
Real incomes - these will fall if they don’t increase in line with inflation

Question 7

Effects of inflation on producers

Answer 7

Labour market costs - consumers will demand higher wages in line with inflation. This increases the cost production for the firm
Unemployment - inflation makes UK economy less competitive. This can result in job loss and unemployment

Question 8

Effects of inflation on government

Answer 8

Welfare benefits will increase
Employment - will spend more as a major employee
Tax - will receive more tax

Question 9

Effects of inflation on savers

Answer 9

Value of savings will fall