Indicators and objectives pt2

Question 1

INDICATION-Inflation

Answer 1

Linked to price stability, it is the general rise of average prices across an economy in a given period of time It costs you more money to buy the same goods. The objective is 2% +/- 1

Question 2

Deflation

Answer 2

The sustained fall of average prices across an economy in a given period of time. (When it falls below 0% inflation)

Question 3

CPI

Answer 3

Consumer price index is the official measure to calculate inflation in the UK. It measures the average cost of living for consumers and doesn’t include house prices.

Question 4

RPI

Answer 4

The retail price index is an older measure used to calculate inflation in the UK and includes housing costs.

Question 5

How is CPI calculated

Answer 5

It is calculated by looking at the basket of goods

Question 6

Basket of goods

Answer 6

The changes in price of 700 consumer goods and services in 150 different areas across the UK

Question 7

INDICATOR-Balance of payments

Answer 7

Records all financial transactions between the UK and the rest of the world. The objective is to avoid large deficit.

Question 8

The current account

Answer 8

Measures imports and exports (goods, services and incomes moving)

Question 9

Capital flows

Answer 9

This refers to capital assets e.g.. factories and oil refineries in different countries outside the UK.

Question 10

X

Answer 10

Exports

Question 11

M

Answer 11

Imports

Question 12

Balance of trade surplus

Answer 12

When the income from exports exceeds the expenditure of imports (X<M)

Question 13

Balance of trade deficit

Answer 13

When more money is spent on imports than is earnt from exports (X<M)

Question 14

Equilibrium or balance

Answer 14

When the value of imports is equal to the value of exports (X=M)

Question 15

Policy conflicts

Answer 15

Government wants to achieve all 4 objectives at the same time which sometimes isn’t possible. Sometimes policies will conflict with one another and so a trade off is needed.