Inflation

Question 1

What is one definition of inflation

Answer 1

The sustained rise in average price of goods and services over a period of time

Question 2

What things do we need to keep in mind for the first definition of inflation

Answer 2

-The prices of some goods may rise faster than the average
-Some prices may rise slowly
-some prices may even fall

Question 3

What is the second definition of inflation

Answer 3

Inflation can be seen as the fall in the value of money

Question 4

What does the second definition mean

Answer 4

A fixed amount of money buys less than before
The purchasing power of money has fallen

Question 5

What is deflation

Answer 5

Average price will be falling

Question 6

What does hyperinflation mean

Answer 6

Prices rise extremely quickly and money loses its value

Question 7

What does disinflation mean

Answer 7

Prices are rising but at a slower speed

Question 8

What is RPI

Answer 8

Retail price index

Question 9

What’s the first survey called and how many households are surveyed

Answer 9

Living costs and food surveys
6000 house holds

Question 10

What is the living cost and food survey used to measure

Answer 10

What people spend there money on and what proportion of income is spent on these items which is used to find out relative weighting of each item

Question 11

What does the second survey measure

Answer 11

Measures changes in price if 700 of the most commonly used in goods and services

Question 12

How are the items chosen and why can the items change

Answer 12

The items are chosen based on Living Costs and Food surveys
The items may change due to trends and tastes so the basket has to reflect what the average household might spend money on

Question 13

What are the price changes multiplied by

Answer 13

The weighting from the first survey which is converted to an index number meaning that inflation is just percentage change

Question 14

What is CPI

Answer 14

Consumer price index

Question 15

What items are excluded from CPI

Answer 15

Mortgage interest payments
Council tax

Question 16

Is the sample to calculate CPI smaller or larger

Answer 16

Larger sample

Question 17

What is CPI the official measure in the Uk

Answer 17

Inflation so it can be used for international comparisons

Question 18

Limitations of RPI

Answer 18

RPI excludes households in top four percent of incomes
Information of Living Costs and Food Surveys may be inaccurate
Basket of goods change once a year

Question 19

Limitations of CPI

Answer 19

Doesn’t include mortgage interest payments or council tax
Basket of goods change once a year

Question 20

What does it mean if RPI and CPI are used to help determine wages and state benefits

Answer 20

-Employees and trade union use them as a starting print in negotiating
-Government uses them to decide in the increase of state pension or other welfare benefits
-Some benefits are index linked so they will rise automatically

Question 21

What does RPI and CPI being used to measure change in UKs international competititivenss mean

Answer 21

If rate of inflation measures by CPI is higher in UK than the other countries it trades with then UK goods become less price competitive