Inflation

Question 1

What is inflation

Answer 1

A sustained and significant increase in the general price level over a period of time

Question 2

What does an index do

Answer 2

It shows the average changes in price of a group of items over a certain period of time

Question 3

What are the 9 types of inflation

Answer 3

Headline inflation - CPI
CPIX inflation
Core inflation
Administered prices inflation
Producer inflation
All-inclusive inflation
Hyperinflation
Stagflation
Deflation

Question 4

What is all-inclusive inflation

Answer 4

The ratio of GDP at current prices to the GDP at constant prices for a specific year

Question 5

What are 6 characteristics of CPI

Answer 5

Pertains to cost of living
Basket consists of consumer goods and services
Capital and intermediate goods are excluded
Prices include VAT
Interest rates are taken into account
Prices of imported goods are not shown

Question 6

What are the 6 characteristics of PPI

Answer 6

Pertains to cost of production
Basket consists of goods only
Capital and intermediate goods are included
Prices exclude VAT
Interest rates are excluded
Prices of imported goods are shown explicitly

Question 7

What are the 3 causes of inflation

Answer 7

Monetarist Explanation
Demand Pull inflation
Cost Push inflation

Question 8

What is the Monetarist explanation of inflation

Answer 8

A higher increase in the supply of money in circulation than in supply of goods and services

Question 9

What is demand pull inflation

Answer 9

When aggregate demand for goods and services exceeds the aggregate supply of goods and services

Question 10

What are the 4 causes of demand-pull inflation

Answer 10

Increased consumption by households
Investment spending
Government spending
Export earnings

Question 11

What can be said about an increase in the money supply without an increase in production

Answer 11

It causes an excessive demand

Question 12

What is cost-push inflation

Answer 12

Inflation triggered by an increase in the cost of production which pushes up the general price level

Question 13

What are the 7 causes of cost-push inflation

Answer 13

Wages
Key inputs
Profit margins
Productivity
Exchange rate depreciation
Natural disasters
Theft by employees / shoplifting

Question 14

What are the 8 consequences of inflation

Answer 14

Debtors / Creditors
Wage and salary earners
Investors and savers
Taxpayers
Industrial instability
Unemployment / Poverty
Balance of payments problems
Psychological influence

Question 15

Read through pages 65 and 66

Answer 15

**

Question 16

What are the short term expectations of the inflation problem

Answer 16

Demand problems
Cost problems

Question 17

What are the long-term expectations of the inflation problem (5)

Answer 17

Logistics infrastructure
Energy problems
Labour
Exchange rate depreciation
Social spending

Question 18

What are the 2 measures to combat demand-pull inflation

Answer 18

Monetary measures
Fiscal policy

Question 19

What are the 2 measures to combat cost-push inflation

Answer 19

Productivity
Competition

Question 20

How has inflation targeting been effective

Answer 20

Curbing demand-pull inflation by limiting consumption expenditure
Managing consumers expectations about future rates
Allowing businesses to make investment decisions knowing that prices will be stable
Providing an explicit measure that serves to improve and accountability of the SARB

Question 21

What has inflation targeting not been effective in

Answer 21

Controlling cost-push inflation because it was designed to cater for demand
Controlling many different factors - e.g. increase in oil price