INFLATION

Question 1

INFLATION

Answer 1

The general rise in prices

Question 2

DISINFLATION

Answer 2

This is when there still is inflation just at a smaller scale eg. 4% to 2%

Question 3

DEFLATION

Answer 3

This is when there is a fall in the general rise in prices

Question 4

CONSUMER PRICE INDEX

Answer 4

Current product price total / Past price total x 100

Question 5

HOW IS CPI CALCULATED IN THE UK?

Answer 5

The Consumer Price Index (CPI) is calculated by tracking the price movements of 650 items, which represents a basket of goods and services typically bought by the ‘average’ UK household.

Question 6

DEMAND PULL INFLATION

Answer 6

Inflation caused by excessive growth in aggregate demand compared to supply

Question 7

CAUSES OF DEMAND PULL INFLATION

Answer 7

➢Higher consumer spending or more demand for exports
➢Low interest rates; cheaper borrowing, lower reward for saving
➢Money supply is growing faster than the output

Question 8

COST PUSH INFLATION

Answer 8

Inflation caused by the rising cost of inputs to production

Question 9

CAUSES OF COST PUSH INFLATION

Answer 9

➢Wage rises could cause prices to rise as firms need to cover costs
➢Rise in costs of raw materials
➢Rise in indirect taxes

Question 10

PROBLEMS OF INFLATION

Answer 10

➢Fall in the standard of living, especially low income households
➢Discourages saving
➢Creates uncertainty
➢Shoe leather costs
➢Competitiveness is reduced

Question 11

SHOE LEATHER COSTS

Answer 11

shoe leather cost is the cost of time and effort

Question 12

WHAT IS THE UK’S TARGET INFLATION

Answer 12

The UK has a target inflation of 2 %.