Asa Flashcards
What is the CPI?
General price level, determined by consumption basket of average consumer
What is deflation?
Negative inflation rate /declining general price level
What is disinflation?
Fall in inflation rate/prices rise at slower rate
What is hyperinflation?
Period of very high inflation/confidence loss in an economy currency
What is inflation rate?
Rate of change of average price of goods and services
What is unit labour costs?
Reflects total labour cost per unit of economic output
Inflation causes decreasing ???
Purchasing power of money
Who sets monetary policy and interest rates aiming to reach inflation target of 2%?
The Bank of England
Representative baskets of goods and services used with X attached to each item based on???
Weights and the importance in peoples expenditure
What is done after weight and multiplied by price changes???
They are totalled to calculate the inflation rate
Give two limitations of the CPI
Not fully representative
Various spending patterns among different groups
Changing goods/service quality
The CPI is slow to respond to new products
Demand, pull inflation is caused by ??
Excess aggregate demand
Give two circumstances where demand pull inflation commonly occurs
Increase credit supply
Economy, reaching full capacity
Positive output gaps commonly lead to ???
Demand pull inflation
Cost push inflation is commonly caused by ???
Rising costs (example, labour, war, materials, or importing)
Give one example of administered prices, causing inflation
Changes in indirect taxes and subsidies
Changes in regulated prices, example, water bills
Give two factors affecting inflationary pressures
Depreciating exchange rate (rising import prices and rising exports)
Increased credit supply ( rising consumer spending ) demand pull inflation risk
Increase in world, commodity prices.cost push inflation
Give two common causes of demand, pull inflation
Full employment factors of production
Inelastic aggregate supply
AAS diagram and X can be used to represent demand, pull inflation…
Keynesian graph
Give two causes of cost, push inflation
Expensive imports ( exchange rate depreciation )
Rising labour and material costs
Increase in business taxes
What diagram can be used to represent cost push inflation?
And A.D. and AS diagram where there is two aggregate supply lines and one aggregate demand line
Give two examples of internal causes of inflation
Increased credit supply
Higher wages and higher labour cost
Rise in business tax
Rapidly increasing property prices
Give two examples of external causes of inflation
Exchange rate depreciation
High inflation in trading partner countries
Inflation of global commodity prices
Give two problems of inflation
A fall in real incomes ( purchasing power decreases )
Wage inflation risk ( higher costs )
Business competitiveness ( expensive exports )
Business uncertainty ( fall in capital investment)
Cost of borrowing increases ( higher interest rates )
Inequality ( lower equal distribution of income and wealth )
Give one winner of inflation
Producers if prices rise faster than cost
Workers with strong wage, negotiating power
Dors if real interest weights are negative
Give one loser of inflation
Lenders if real interest rates are negative
Savers if real returns are negative
Retired people on fixed incomes
Workers in low, paying jobs
Give one difficulty of calculating inflation
Exchange rate fluctuations
Unstable, global commodity prices
Government, indirect taxes
Uncertain aggregate demand growth
Give two macro economic policies, controlling inflation
Fiscal policy tightening a fiscal policy, for example, welfare, payments, or higher indirect taxes
Monetary policy (higher interest rate or tighter credit)
Supply side policy (increased productivity, competition, innovation, efficiency of allocation of factors of production)
Direct controls (example, public sector pay controls)
What does monetarism believe?
Increases in money supply can cause inflation
What is equation of exchange?
MV equals, PT
In equation of exchange, M is???
Total money in the economy
In equation of exchange, V is ?
Velocity in circulation, i.e. how quickly money is spent
In equation of exchange, p is
Average price of each transaction
In equation of exchange, T is
Total number of transactions made over a period
The monetary transmission mechanism shows how ???
Changes in money supply change national income
The monetary transmission mechanism considers many processes of increased …
Money supply, leading to cost / demand inflation
