5.4c More inflation Flashcards
what is inflation?
the increase in the price of goods and services over time
who monitors the rate of inflation?
the bank of england
what happens to the price of everyday items if inflation is high?
they increase
what happens if inflation is negative?
the cost of products and services goes down
why can negative inflation be bad for businesses?
- it encourages customers to not buy a product or service immediately and wait for the price to to go down again
- businesses don’t feel as confident about the state of the economy and whether they will survive
why can negative inflation be good for businesses?
- the amount they pay to the suppliers remains low
- employees are less likely to ask for payrise (low cost of living)
how do you measure the increase/decrease in inflation?
(difference in price of product/price of product before) x 100 (percentage)
how does a high inflation rate affect UK exports?
it makes UK exports more expensive so UK firms become less competitive globally so these companies see a fall in sales
what happened to the rates of inflation in the UK in 2015?
they became negative
if the cost of an item goes up from £1 to £1.05, what is the increase in inflation?
(£0.05/£1.00) x 100 = 5%
What are some of the main causes of inflation?
High demand for items. When there is a high demand, the price of items will rise.
Customer confidence: When unemployment is low and wages are stable, people will be willing to spend more money. This drives up the prices as manufactures and providers charge more for goods and services which are in high demand
What is cost push inflation?
Cost push inflation refers to rising costs of production, contributing to increasing pricing pressure.
What is demand pull inflation
Demand pull inflation refers to high demand causing rising prices.
With inflation, what other expectations occur?
The expectation of further inflation should be a concern for consumers and businesses. This expectations become guiding principles behind the actions of these businesses.
What is an example of extreme inflation (Hyperinflation)
Zimbabwe had no firm basis to give to money. They had high national dept and the government began printing money in response to the decline in economic output.. There was also a shortage of supply which was made worse by the price controls.
