3Y: Economic Indicators - Inflation

Question 1

What are the 6 Economic Indicators?

Answer 1

1. Inflation
2. Employment Levels
3. Interest Rates
4. National Debt
5. National Income
6. Economic Growth

Question 2

What is Inflation?

Answer 2

Inflation is the increase in the general level of prices of goods and services from one year to the next.

Question 3

How is Inflation measured?

Answer 3

The official rate of inflation is measured by the Consumer Price Index (CPI).

Difference between Year1 and Year 2 x 100

Cost of Living in Year1

Question 4

What are the Causes of Inflation? (4)

Answer 4

1. Cost-Push Inflation: when the cost of producing goods increases….wages, raw materials…etc.
2. Imported Inflation: when the cost of imported raw materials increases.
3. An increase in Indirect Taxes: increase in VAT or excise duties.
4. Demand-Pull Inflation: if the demand for goods or services is greater than the supply, the price will rise.

Question 5

What are the impact of high inflation on households? (2)

Answer 5

1. Inflation reduces the purchasing power of money. Will not be able to buy as many goods and services. Result in lower standard of living.
2. Inflation stops people from saving money, if the rate of interest is less than the rate of interest. Savings losing value.

Question 6

What are the impact of high inflation on businesses? (2)

Answer 6

1. Workers may demand wage increases. This will increase business costs which will result in lower profits or higher prices.
2. Rising business costs will discourage expansion and investment.

Question 7

What are the impact of high inflation on the Economy? (3)

Answer 7

1. Irish-made goods and services will be more expensive. It will be more difficult to sell them and could result in job losses.
2. Ths higher cost of Irish-made goods will result in cheaper imported goods and services.
3. Goverment spending may increase due to rising costs and increased social protection payments.

Question 8

What are the benefits of Low Inflation to the Economy?

Answer 8

1. People will spend more money which increases profits for businesses and could create more jobs.
2. Government will have increased revenue from taxes (VAT, Income Tax…etc)
3. People will have more disposable income, so they will save more.