Inflation

Question 1

Define inflation

Answer 1

Increase in prices and a fall in value of money

Question 2

How is inflation measured?

Answer 2

CPI (A basket of household items e.g. bread or soap and calculates the inflation in price)

Question 3

Causes of inflation

Answer 3

Demand Pull inflation (more demand than supply, people pay more for limited supply), Cost Push inflation (price of production increases, e.g. wages increase or a resource like oil costs more), Inflationary expectations (when inflation is expected so consumers bring forward purchases simulating high demand), Imported inflation (rising import prices or depreciation of the currency)

Question 4

4 types of inflation

Answer 4

Demand pull, cost push, inflationary expectations, imported inflation

Question 5

Impacts of inflation

Answer 5

Individuals lose purchase power, workers effectively lose wages, businesses raise prices and find it hard to sell, savers find their money value decreases, investors find projects less profitable, governments take on increased costs