Asa

Question 1

What is the CPI?

Answer 1

General price level, determined by consumption basket of average consumer

Question 2

What is deflation?

Answer 2

Negative inflation rate /declining general price level

Question 3

What is disinflation?

Answer 3

Fall in inflation rate/prices rise at slower rate

Question 4

What is hyperinflation?

Answer 4

Period of very high inflation/confidence loss in an economy currency

Question 5

What is inflation rate?

Answer 5

Rate of change of average price of goods and services

Question 6

What is unit labour costs?

Answer 6

Reflects total labour cost per unit of economic output

Question 7

Inflation causes decreasing ???

Answer 7

Purchasing power of money

Question 8

Who sets monetary policy and interest rates aiming to reach inflation target of 2%?

Answer 8

The Bank of England

Question 9

Representative baskets of goods and services used with X attached to each item based on???

Answer 9

Weights and the importance in peoples expenditure

Question 10

What is done after weight and multiplied by price changes???

Answer 10

They are totalled to calculate the inflation rate

Question 11

Give two limitations of the CPI

Answer 11

Not fully representative
Various spending patterns among different groups
Changing goods/service quality
The CPI is slow to respond to new products

Question 12

Demand, pull inflation is caused by ??

Answer 12

Excess aggregate demand

Question 13

Give two circumstances where demand pull inflation commonly occurs

Answer 13

Increase credit supply
Economy, reaching full capacity

Question 14

Positive output gaps commonly lead to ???

Answer 14

Demand pull inflation

Question 15

Cost push inflation is commonly caused by ???

Answer 15

Rising costs (example, labour, war, materials, or importing)

Question 16

Give one example of administered prices, causing inflation

Answer 16

Changes in indirect taxes and subsidies

Changes in regulated prices, example, water bills

Question 17

Give two factors affecting inflationary pressures

Answer 17

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

Question 18

Give two common causes of demand, pull inflation

Answer 18

Full employment factors of production
Inelastic aggregate supply

Question 19

AAS diagram and X can be used to represent demand, pull inflation…

Answer 19

Keynesian graph

Question 20

Give two causes of cost, push inflation

Answer 20

Expensive imports ( exchange rate depreciation )

Rising labour and material costs

Increase in business taxes

Question 21

What diagram can be used to represent cost push inflation?

Answer 21

And A.D. and AS diagram where there is two aggregate supply lines and one aggregate demand line

Question 22

Give two examples of internal causes of inflation

Answer 22

Increased credit supply
Higher wages and higher labour cost
Rise in business tax
Rapidly increasing property prices

Question 23

Give two examples of external causes of inflation

Answer 23

Exchange rate depreciation
High inflation in trading partner countries
Inflation of global commodity prices

Question 24

Give two problems of inflation

Answer 24

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 )

Question 25

Give one winner of inflation

Answer 25

Producers if prices rise faster than cost

Workers with strong wage, negotiating power

Dors if real interest weights are negative

Question 26

Give one loser of inflation

Answer 26

Lenders if real interest rates are negative

Savers if real returns are negative

Retired people on fixed incomes

Workers in low, paying jobs

Question 27

Give one difficulty of calculating inflation

Answer 27

Exchange rate fluctuations
Unstable, global commodity prices
Government, indirect taxes
Uncertain aggregate demand growth

Question 28

Give two macro economic policies, controlling inflation

Answer 28

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)

Question 29

What does monetarism believe?

Answer 29

Increases in money supply can cause inflation

Question 30

What is equation of exchange?

Answer 30

MV equals, PT

Question 31

In equation of exchange, M is???

Answer 31

Total money in the economy

Question 32

In equation of exchange, V is ?

Answer 32

Velocity in circulation, i.e. how quickly money is spent

Question 33

In equation of exchange, p is

Answer 33

Average price of each transaction

Question 34

In equation of exchange, T is

Answer 34

Total number of transactions made over a period

Question 35

The monetary transmission mechanism shows how ???

Answer 35

Changes in money supply change national income

Question 36

The monetary transmission mechanism considers many processes of increased …

Answer 36

Money supply, leading to cost / demand inflation