Bank of England

Question 1

Inflation

Answer 1

When there’s a greater demand than supply

Question 2

Inflation effect: Why does it increase uncertainty?

Answer 2

Harder to predict future demand, costs and profits as inflation distorts values

Question 3

Inflation effect: Why does it increase administration?

Answer 3

Costs of changing price lists, brochures and accounts

Question 4

Inflation effect: Why does it reduce profit margins?

Answer 4

Firms in competitive markets can’t pass the price onto customers as they need to remain competitive

Question 5

Inflation effect: Why do trade unions become more active?

Answer 5

As they want to ensure the workforce receives an increase in real wages

Question 6

Inflation effect: Why does the country’s economy as a whole become less competitive?

Answer 6

As their prices are rising faster than a foreign country, so orders are lost

Question 7

How does the Bank of England try to reduce inflation?

Answer 7

Raising interest rates, so that people don’t spend as much

Question 8

Advantages of raising interest rates?

Answer 8

Strengthens the £

Customers earn more on their savings

Question 9

Disadvantages of raising interest rates?

Answer 9

Loan repayments increase

Customers save money, instead of buying products