C34 Inflation Flashcards
What is inflation?
Sustained rise in the price of goods and services over a period of time or
A fall in the value of money
What’s positive inflation?
Average price of goods and services are rising
What’s negative inflation?
Average price or goods and services are falling (deflation)
What is hyperinflation?
Prices rise extremely quickly or money rapidly loses its value
What is disinflation?
The rate of inflation is slowing down
What is the measure of inflation?
The RPI (retail price index) a survey of 6000 households on the cost of essential goods
What is CPI
Similar to the RPI but excludes some items such as mortgages and council tax but also uses larger sample sizes.
What is the limitation of RPI?
RPI doesn’t take into account top 4% of income households
The info may be inaccurate
The basket only changes once per year
What are CPI and RPI used for?
Determined wage and state benefits
Used as starting wage negotiations
Used to decide changed to state pension
What is demand-pull inflation?
Inflation caused by excessive growth of the AD in comparison to AS
What causes demand-pull inflation?
High consumer spending
High foreign demand
If demand grow quickly at a time of full employment
What is cost-push inflation?
Inflation caused by the rising cost of production
What causes cost-push inflation?
Rise in wages
Rise in the cost of imported materials
Rise in taxes
As these cause costs to firms which is then passed onto the consumer
What is the money supply?
The money supply is the sum total of all of the currency and other liquid assets in a country’s economy on the date measured
What is reflation?
A rise in GDP after a recession
