INFLATION Flashcards
Inflation Target
The Monetary Policy Committee of the Bank of England uses monetary policy to try and achieve the target rate of 2% inflation
(+/ - 1% )
What is inflation?
A persistent increase in the avg price level of goods and services over a period of time
What is deflation?
a persistent decline in avg price level to fall (negative inflation/ below 0%)
what is disinflation?
when the rate of inflation is falling but is still positive
How is inflation measured?
- CPI - Consumer Price Index
2. RPI - Retail Price Index
What is consumer price index?
It calculates the avg increase in price of a basket of 700 different consumer goods and services
What is Retail price index
a measure formerly used in the uk to calculate the rate of consumer price inflation, it includes the costs of mortgage repayments, council tax etc..
What are the causes of inflation?
- Cost push inflation
2. Demand pull inflation
what is cost push inflation?
cost push: a rising price level caused by an increase in the cost of production, shown by a left shift on the SRAS curve
cost of production may increase due to wage-cost inflation and import-cost inflation.
What is demand pull inflation?
demand pull: a rising price level caused by an increase in AD, shown by a right increase on the AD curve
what is import -cost inflation?
caused by commodity price inflation e.g., emerging markets will experience rapid growth and industrialisation, in addition, due to limited resources, prices will increase
How does Economic cycle of other countries impact the inflation rate of the uk?
When USA sneezes, the rest of the world catches a cold
