Cash Flashcards
Why are interest rates increased?
To curb inflation
Are NS&I products covered by FSCS?
No because they are backed by the government
What is inflation?
The percentage increase in prices over a 12 month period based on a basket of goods and services
What is the main measure of inflation in the UK?
Consumer Price Index (CPI)
If the headline rate of inflation falls does this means prices have fallen?
No it means prices aren’t rising as quickly
What is the Bank of England inflation target?
2%
What causes inflation to rise?
Cost (push)
demand (pull)
Cost example - grain supplies fell following invasion of Ukraine so prices rose.
Pull example - booming economy so demand for materials and labour increases so business activity increases so prices rise
What is deflation?
Falling prices.
And because people think prices will keep falling there would be a reluctance to buy or invest so demand falls more and this is bad for the economy
Why is inflation good for borrowers?
It reduces the real value of their debt
Why is inflation bad for lenders?
Their capital is reduced in real terms
