Inflation

Question 1

Inflation definition

Answer 1

Inflation can be defined as a persistent rise in the price level and the associated fall in the value of money

Question 2

What is deflation?

Answer 2

Deflation is the rate of decrease of the general price level and the corresponding rise in the value of money.

Question 3

What is the Consumer Price Index (CPI)?

Answer 3

The CPI measures the rate of inflation based on changes in the prices of a basket of goods and services.

Question 4

How do businesses respond to inflation?

Answer 4

• If they anticipate that the price of raw materials may rise, they may raise selling prices.
• Wage demands increase
• High rates of inflation can see a fall in sales due to reduced consumer spending power.
• Steady rates of inflation promote businesses to invest.