Inflation

Question 1

Consumer Price index

Answer 1

Used to calculate the rate of inflation using a weighted basket of goods - Survey used, updated annually, measures price change of goods

Question 2

Retail Price index

Answer 2

includes housing costs and excludes top 4% and low income pensioners and doesn’t take into account product switching

Question 3

Causes of Inflation

Answer 3

Demand pull - when AD grows unsustainably there’s pressure on resources and producers increase prices and earn more profits - caused by depreciation in exchange rates, Lower interest rates, high growth

Cost Push - When firms face rising costs - caused by price increases in raw materials/labour, depreciation in exchange rates, indirect taxes

Growth of money supply - More money printed more money flowing in economy which can cause hyperinflation