Inflation

Question 1

Aggregate demand

Answer 1

Total demand in the economy including consumption, investment, government expenditure and exports minus imports

Question 2

Deflation

Answer 2

Period where the level of aggregate demand is falling

Question 3

Inflation

Answer 3

Rate at which prices rise, a general and continuing rise in prices

Question 4

CPI

Answer 4

Measure of the general price level, excluding housing costs

Question 5

RPI

Answer 5

Measure of the general price level, which includes house prices and council tax

Question 6

Demand pull inflation

Answer 6

Inflation caused by too much demand in the economy relative to supply

Question 7

Cost push inflation

Answer 7

Inflation caused by rising business costs

Question 8

Demand pull inflation can be caused by

Answer 8

• Rising consumer spending
• Sharp increase in gov. spending
• Rising demand for resources by firms
• Booming demand for exports

Question 9

Cost push inflation can be caused by

Answer 9

• Rising costs of imported goods
• Wage increase
• Increase in taxation

Question 10

Interest rates

Answer 10

Price paid to lenders for borrowed money, it is the price of money

Question 11

Monetarists

Answer 11

Economists who believe there is a strong link between growth in the money supply and inflation

Question 12

Impacts of inflation

Answer 12

Prices - reduction in purchasing power of money
Wages - increase in wage rates, causing higher prices (cyclical inflation)
Menu costs
Unemployment - as aggregate demand rises, unemploymet will decrease
Exports - If inflation is higher at home than in other countries, firms may find it difficult to sell in overseas markets.
Shoe leather costs - prices change often
Hyperinflation
Fall in investment due to reduced consumer and firm confidence