INFLATION

Question 1

What is inflation

Answer 1

Economists define inflation as a persistent and appreciable rise in general or average level or prices over a period of time

Question 2

WHAT IS DEFLATION

Answer 2

Reduction of the general level of prices in an economy

Question 3

WHAT IS CPI

Answer 3

CPI measures changes in the prices of a basket of goods and services bought by Australian households from one month to the next

Question 4

What is the most familiar measure of inflation in Australia

Answer 4

Consumer Price Index (CPI)

Question 5

WHAT IS THE BASKET

Answer 5

The BASKET refers to “the composition of the basket reflects the consumption preferences of Australian households”

Question 6

What can be in the basket

Answer 6

includes steak to motor cars and from dental fillings to restaurant meals

Question 7

What is the definition of weight

Answer 7

Weights reflect the relative importance of items measured by their shares in the total consumption of households

Question 8

WHY CAN WEIGHT CHANGE

Answer 8

Weights are likely to rise and fall depending on changes in consumer preference and their reactions to price changes

Question 9

WHAT ARE HIGH WEIGHT GROUPS

Answer 9

High-weight groups include Housing, Food and non-alcoholic beverage, transport

Question 10

WHAT ARE LIMITATIONS OF CPI

Answer 10

1. Only reports price movements in metropolitan areas and families
2. Not regarded as a true cost-of-living index because it does not reflect changing consumer
   preferences or the substitutions which consumers make from day to day in response to
   relative price changes (e.g. consumers buying apples rather than bananas if the price of
   bananas rises due to a cyclone)
3. Cannot account for changes in the quality of goods over time and is likely to overstate price
   increases
4. Doesn’t take into account all goods

Question 11

WHAT IS Trimmed Mean Inflation

Answer 11

The top 15% and the bottom 15% of all price movements are “trimmed away” and removed from the inflation calculation.
This removes the impact of the smallest and largest price changes

Question 12

Weighted Median Inflation

Answer 12

The inflation rate is calculated based on the price change of the item that is at the middle of all of the price changes in the CPI basket

Question 13

Who is hurt or helped by inflation depends on what?

Answer 13

If it is anticipated or not

Question 14

Who is hurt by inflation?

Answer 14

• people who lend
• people on a fixed income(money will have less purchasing power and lose value)

Question 15

Who is helped by inflation?

Answer 15

People who borrow money

Question 16

What is hyperinflation?

Answer 16

Inflation occuing at a very high rate; rapid increase

Question 17

During hyperinflation, how high can the rates go?

Answer 17

100% - 500% per month

Question 18

What happens to money during hyperinflation?

Answer 18

Loses its value

Question 19

What can hyperinflation lead to

Answer 19

A total economic collapse

Question 20

The main index for inflation

Answer 20

CPI

Question 21

How is inflation measured by

Answer 21

The percentage change in CPI

Question 22

What is headline inflation

Answer 22

Headline inflation measures the total inflation within an economy, including all goods and services. This includes volatile items suchas food and energy prices, which can fluctuate widely due to factors like weather, geopolitical events

Question 23

What is underlying inlfation

Answer 23

Underlying inflation, also known as core inflation, excludes certain volatile items to provide a clearer view of the long-term inflation trend. By excluding volatile items can distort the overall inflation trend.