4.6 Price Stability

Question 1

What does price stability mean?

Answer 1

A low and stable inflation rate

Question 2

What is the definition of Inflation?

Answer 2

The sustained rise in the general level of price in an economy over time

Question 3

What is an Inflation rate?

Answer 3

The change in the rate of inflation

Question 4

What does deflation mean?

Answer 4

The sustained fall in the general level of prices in an economy over time

Question 5

What does disinflation mean?

Answer 5

A fall in the inflation rate (Inflation rate is still positive but just less positive)

Question 6

How do you measure inflation?

Answer 6

Using the consumer price index (CPI)

Question 7

How does the government make the CPI value?

Answer 7

1. The household expenditure survey
2. Average out the most bought things on average by households
3. Create the basket of goods
4. Record average price of each item in the basket of goods
5. Make a weighted average of each value

Question 8

What is a limitation of the sampling size when creating the basket of goods?

Answer 8

If sampling sizes are too small it can lead to the basket of goods not being representative of the general households which can lead to an inaccurate CPI value

Question 9

What is a human error limitation of making the CPI value?

Answer 9

There can be calculation errors