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Economic A Level > Inflation > Flashcards

Inflation Flashcards

1
Q

What is inflation

A

It is the sustained rise in the general price level in one year as measured by changes in the consumer price index

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2
Q

What does inflation cause

A

A rise in the cost of living and a fall in the value or purchasing power of money

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3
Q

What is dis inflation

A

It describes a situation in which the inflation rate is rising but at a slower rate

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4
Q

What is deflation

A

It refers to the situation in which average prices are falling

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5
Q

What is price stability

A

Refers to the situation when the average price level is constant and there is no inflation

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6
Q

What is Hyper-inflation

A

It describes a situation in which average prices rise extremely quickly
Causes money to lose value by a lot

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7
Q

What are the 3 causes of inflation

A

Demand pull
Cost push
Expectations of inflation

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8
Q

What is demand pull inflation

A

It is the increase in prices caused by an increase in AD
Pressure of prices is worse when the economy is near full capacity

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9
Q

What causes demand pull inflation

A

Increased C
Increased I
Increased G
Increased (X-M)
Excessive growth of money supply

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10
Q

What is cost push inflation

A

The decrease in supply caused by higher supply costs

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11
Q

What causes cost push inflation

A

Rising raw material costs
Rising cost of labour
Higher business taxes
Depreciating exchange rates

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12
Q

What is expectations of inflation

A

It is when people expect inflation in the future so people do things that cause inflation

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13
Q

What are the 2 things people do when inflation is expected

A

The wage price spiral
Spend more by bringing their spending forwards to avoid increased prices

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14
Q

What is the wage price spiral

A

It is when workers ask for higher wages which causes the companies costs to increase
This causes the firm to increase their prices and the general price level increases
This causes inflation and loops back to asking for higher wages

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15
Q

What things cause both demand pull and cost push inflation

A

Rising wage rates
Depreciating exchange rates

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16
Q

Which inflation is seen as better

A

Demand pull inflation is better because it also causes GDP growth as well as inflation

17
Q

What is the inflation target

A

2%

18
Q

Who is responsible for inflation

A

Monetary Policy Committee of the bank of England

19
Q

What are the costs of inflation

A

Smaller purchasing power for people
It redistributes money from savers to borrowers
Menu Costs
Shoe leather costs
Less competitive in international trade
Harder to tell which goods and services are better and more efficient
Causes higher interest rates

20
Q

What are menu costs

A

It is the costs for firms of changing things which have the prices on them
e.g. menus

21
Q

What is shoe leather costs

A

The extra time to find the most competitive supplier of goods

22
Q

What are the benefits to inflation

A

It reduces the real money value of large national debts
Asset price inflation e.g. rising house prices
Removing inflation will cause a fall in AD
Government plays money illusions on how much they are spending on somethings

23
Q

How do you deal with demand pull inflation

A

Decrease AD

24
Q

How do you deal witn cost push inflation

A

Increase SRAS

25
Q

How do you deal with inflationary exceptions

A

Persuading people there is no future inflation

26
Q

What policies are used to deal with demand pull

A

Higher interest rates
Reducing money supply
Raising the exchange rate
Increase Taxes
Decrease gov spending
Supply side

27
Q

what policies are used to deal with cost push if there is wage inflation

A

Control wage levels of public sector workers
Freeze or lower national minimal wage
Ban firms increasing wage by more than a certain amount
supply side

28
Q

What policies are used to deal with cost push if there is commodity price inflation

A

Change exchange rates
Supply side

29
Q

What policies are used to deal with cost push inflation if there is higher domestic costs

A

Subsidies
Deregulation
supply side

Economic A Level (22 decks)

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