Inflation Flashcards
Definition of Inflation
A general increase in prices and fall in the purchasing value of money.
Definition of Hyper-Inflation
Very high and accelerating inflation.
Definition of Disinflation
When the inflation rate falls, but still remains positive
Definition of Deflation
When the inflation rate is below 0%.
Definition of Cost-Push Inflation
When overall prices increase due to the increase in cost of wages and raw materials.
Definition Of Demand-Pull Inflation
When growing demand of goods and services meets insufficient supply, driving higher prices.
The Impacts Of Inflation (5)
Income Redistribution (regressive effect on low-income families and older people in society).
Fall In Real Wages (millions face cut in wages or pay freeze).
Negative Real Interest Rates (if interest rates on saving accounts are lower than inflation rates, then people who rely on interests from savings will be poorer).
Cost Of Borrowing (high inflation means higher borrowing costs for businesses/pressure on gov to increase welfare values).
Business Uncertainty (businesses uncertain of what prices will be, could result in lower capital investments).
Bank Of Englands Inflation Target
2%
At what percentage do economists typically classify the start of hyperinflation?
50%
What increases the value of money?
Deflation
What decreases the value of money?
Inflation
What is inflation rate?
% change in price level.
How many steps are there when calculating a country’s price level?
3
What Is Consumer Price Index?
Measure of price changes of a basket of goods and services most commonly purchased by households.
What is the first step of Consumer Price Index?
Office of National Statistics’ Living Costs and Food survey : Interview 7000 households and ask what they spend their money on.
Allows them to find out the 650 most commonly purchased goods and services and % total spending spent on these goods.
