Inflation Flashcards
What is inflation?
: Inflation is the persistent and appreciable rise in the general price levels of goods and services over time.
What is the opposite of inflation?
The opposite of inflation is deflation, where prices of goods and services fall.
How is inflation measured?
Inflation is measured using the Consumer Price Index (CPI), which tracks changes in the prices of a basket of goods and services bought by households from month to month.
Why is inflation an important concept in economics?
Inflation affects many aspects of the economy, including purchasing power, business costs, wages, interest rates, government policies, savings, investment, and income equality.
What is the target range for inflation in Australia?
he target range for inflation in Australia is between 2-3% per year.
What is Cost-Push Inflation?
ost-Push Inflation occurs when the price level for goods and services increases due to rising costs of production inputs such as wages and raw materials.
What is Demand-Pull Inflation?
Demand-Pull Inflation is caused by an increase in aggregate demand that exceeds aggregate supply, leading to general price level increases.
How does inflation affect real income and purchasing power?
Inflation decreases real income and purchasing power if wages do not increase at the same rate as inflation.
How does inflation impact international competitiveness?
High inflation can reduce international competitiveness by increasing prices of exports relative to other countries, leading to a depreciation of the national currency.
What are the potential impacts of high inflation on investments and business decisions?
High inflation increases uncertainty for businesses and consumers, making long-term financial planning and investment decisions riskier.
What is capital for labor substitution?
Capital for labor substitution occurs when businesses replace labor with capital (machines, automation) due to rising labor costs driven by inflation.
How does inflation drive structural changes in the economy?
Inflation-driven changes in labor costs can lead to structural changes in industries, such as increased adoption of automation and technology, altering the demand for different skills and jobs.
wHAT IS HEADLINE INFLATION
Headline inflation is the total inflation in an economy. The headline inflation figure includes inflation in a basket of goods that includes commodities like food and energy.
WHAT IS UNDERLYING INFLATION
hese indicators exclude items that have particularly large price changes (either frequently or in a given period). Large price changes can often be due to temporary factors, which are sometimes unrelated to broad conditions in the economy.
