91222 inflation

Question 1

inflation

Answer 1

a sustained increase in the general price level

Question 2

deflation

Answer 2

a fall in general price level

Question 3

hyper inflation

Answer 3

an incredibly high rate of inflation

Question 4

general price level

Answer 4

an average of all prices in the economy measured by an index

Question 5

general or persistant price rise

Answer 5

an increase in the average of all prices in the economy measured by an index such as CPI

Question 6

indivdual price rise

Answer 6

an increase in the market price of a single product

Question 7

purchasing power

Answer 7

inflation reduces the purchasing power of money ( you cannot buy as much for the same amount in $ )
purchasing power is the amount of goods your income will pay

Question 8

nominal value

Answer 8

the value in current year dollars
unjusted rate or current price without taking inflation or other factors into account

Question 9

real value

Answer 9

the nominal value adjusted for the effect of inflation

Question 10

disinflation

Answer 10

a slowing rate of increase in the general price level

Question 11

CPI

Answer 11

consumer price index
the measured change in the price level of a basket of goods and services purchased by households. type of index allowing us to calculate the rate of inflation.

Question 12

price index numbers

Answer 12

takes prices from a large bundle of goods and calculates an index number and gives us a indication of prices if inflation or deflation is occuring

Question 13

weighted price index

Answer 13

CPI uses weighting process
each item in the CPI has a different influence over the final score depending on its importance to households. determined by the fraction of total spending on that item.
eg households spend 17% of their income on food so food makes up 17% of their final price index CPI.

Question 14

using index values to work out inflation rate and formula

Answer 14

inflation is calculated by one period to another not from base year.
formula
= % change = new - old / old x 100

Question 15

limitations of CPI

Answer 15

fails to include prices of goods that are diffcult to measure eg second hand goods
measures the average household but what is the average household
spending patterns changing constantly
many goods change desgin quality and performance
accepted internatianlly but other countries weighing of goods differ

Question 16

other price indexs

Answer 16

producer price index - measures cost of production
food price index - measures rate of price change in food and food services
capital goods price index- measures inflation in terms of capital goods

Question 17

Nominal GDP

Answer 17

quantity of goods and services
X
price of goods and services

GDP = PXQ in current dollar terms shows the acutal amount you pay now

Question 18

Real GDP

Answer 18

nominal GDP / price index ( CPI ) X 100 ( base year index )

constant dollar terms the effect of inflation taken out best to use comparison from year to year

Question 19

Real GDP per capita

Answer 19

REAL GDP/ POPULATION

shows obtained measure of economic output per person as an indicator of average standard of living in a country

perfered measure since it accounts for diffrence sizes in population meaning more calculated standard of living and economic well being of indivduals in a country

Question 20

Nominal wage

Answer 20

the acutal amount the producer pays for labour impacting costs of production AS

Question 21

Real value

Answer 21

the purchasing power of wages for consumers adjusted for inflation

nominal wage rise - inflation rate = real wage rise

Question 22

effects of inflation of C+I+G+(X-M)

Answer 22

firms - production costs rise business confidence decreases, difficult to plan difficult to reproduce outset/put
housesholds - income causes fiscal drag consumption decrease interest rates rise savers may benefit
goverment - welfare payments rise taxes decrease costs rise
( X-M) - imports increase as cheaper to buy assuming trading partners do not have inflation exports become more difficult.

Question 22

effects of inflation

Answer 22

cost of living rises, interest rates rise, borrowers have higher re payments, savers recieve more interest = cost of living rises.

if inflation os higher than interest rate purchasing power decreases

Question 22

fiscal drag

Answer 22

a slowing in the growth of the economy caused by a lack of spending as increased taxation slows the demand for goods and services.

Question 23

inflation more depth defintion

Answer 23

Inflation is an increase is the general price level of a nation over a period of time, usually a year. Inflation means the average level of prices is rising and a dollar will buy less now compared with a previous time period i.e. the purchasing power of the dollar is falling.

Question 24

deflation more depth defintition

Answer 24

Deflation is a decrease in the general price level of a nation over a period of time, usually a year. Deflation means the average level of prices is decreasing and a dollar will buy more now compared with a previous time period i.e. the purchasing power of the dollar is increasing.