Inflation Flashcards
What is inflation?
The general rise in price over time.
What is disinflation?
A slow down in the rate of inflation.
What is deflation?
A general decrease in prices over time. Or negative inflation rates.
How is inflation measured?
With the Consumer Prices Index (CPI). And the Retail Price Index (RPI)
What is the consumer price index (CPI)?
A representitive basket of around 700 goods and services which prices are recorded every year to indicate inflation rates.
Who monitors the measures of inflation rates?
The ONS (Office of National Statistics)
What unit is inflation measured in?
Indicies.
What is retail price index (RPI)?
It measures cost escalation in government transfer payments and wage contract negotiatio but is not the official inflation stat.
What is the RPI used to determine?
Cost of living.
Wage escalation.
Tax allowances.
Social housing rent increases.
Wage rates during employment negotiations.
What do real values show us?
The effect of inflation (or deflation) so it shows actual quantity changes.
What do nominal values show us?
Current prices without modifying for inflation.
What is cost-plus inflation?
When cost increases cause the AS curve to move upwards. However much is supplied, prices will have to rise to cover new, higher costs.
What are the main causes of cost-push inflation?
Rising prices for oil and other commodities.
Wage increases.
Fall in the £ which makes imports more expensive.
What is demand-pull inflation?
If AD rises above the maximum possible output and the likely result is overheating.
What is overheating in the economy?
When the economy reaches its limits of capacity to meet AD.
