inflation

Question 1

inflation definition

Answer 1

inflation is defined as a persistent increase in the average price level in the economy, usually measured trough the use of a CPI

Question 1

how is inflation measured ?

Answer 1

• measured with CPI. Simply put, statisticians choose what is know as a representative “basket” of consumers goods and services, and measure how the price of this basket changes over time. When it increases, the average price level has risen.
• the change in price of the basket is reflected in the measure called consumer price index
• some goods and services are more important than others (ex: housing) therefore, they’ve given a weight/percentage
  CPI23 - CPI 22
  inflation rate 2023 = ———————————— x100
  CPI22

Question 2

costs of inflation

Answer 2

• loss in purchasing power
• effect on savings
• higher interests rates

Question 3

complications when measuring inflation (5)

Answer 3

• not precise because CPI does not reflect the situation of many people : the basket varies from household to household
• imprecise data : may be errors when collecting data + impossible to collect data for all goods and services
• difficult to make comparaisons from a period of time to an other
• difficult to compare internationally because different calculation
• changes in price of goods and services

Question 4

demand-pull inflation

Answer 4

• occurs when AD increase, due to the components of AD (exemple: consumer confidence)

Question 5

cost-push inflation

Answer 5

• occurs when there is a rise in the costs of production (due for exemple of a rise in costs of labour)

Question 6

combining demand-pull inflation with cost-push inflation

Answer 6

• also known as the inflationary spiral

Question 7

deflation

Answer 7

deflation is defined as a persistent decrease in the average price level in the economy. It is categorised in two types: good and bad deflation

Question 8

good deflation

Answer 8

• occurs when improvements in supply or increase in productivity
• an increase in supply can result with higher real output and lower average price level

GRAPH + explanation

Question 9

bad deflation

Answer 9

• might seem positive at first, but if prices continue to decrease, the economy will suffer and less workers will be needed, therefore more inflation

Question 10

costs of deflation

Answer 10

• less investments
• less consumers confidence
• unemployment
• deffered consumption (people waiting even more for prices to drop)

Question 11

trade off between unemployment and inflation : Philips curve

Question 12

ways to measure inflation

Answer 12

• CPI
• PPI

Question 13

rates inflation Germany and italy

Answer 13

italy 0.6% (due to new politicians Georgia meloni)
germany 3.7% gen 2024