inflation 2.1.2

Question 1

define inflation

Answer 1

the annual rate of change of the average price of goods and services

Question 2

define disinflation

Answer 2

a fall in the rate of inflation - prices are still rising but at a slower rate

Question 3

define deflation

Answer 3

a decline in the general price level of an economy - signified by an annual inflation rate below 0%

Question 4

define hyper-inflation

Answer 4

a period of very high rates of inflation usually leading to a loss of confidence in a country’s economy

Question 5

define consumer price index (CPI)

Answer 5

a measure of the economy’s price level based on prices of products that consumers consume

Question 6

what was the old measure of inflation that the UK used and what was its target?

Answer 6

RPI - target: 2.5% (+ or - 1)

Question 7

what is the current target of inflation?

Answer 7

2% (+ or - 1)

Question 8

why is the CPI a better measure of inflation?

Answer 8

UK is able to stay price competitive with other countries

Question 9

define unit labour costs

Answer 9

measure the average cost of labour per unit of output

Question 10

how do you calculate the rate of inflation?

Answer 10

base year= 100 - % difference from base year value to current value e.g.,
2013 - 100 ( base year)
2017 - 102
2022 - 109
= 9% rate of inflation

Question 11

when does demand pull inflation occur?

Answer 11

when there is excess demand so businesses increase their prices so they achieve bigger profit margins - AD is inelastic
- positive output gap (actual GDP > potential GDP)

Question 12

aggregate demand formula:

Answer 12

AD= C+ I + G + (X-M)
C = consumption
I = investment
G = government spending
(X-M) = total exports - total imports