Inflation

Question 1

Inflation

Answer 1

Sustained rise in general price level- weighted average spending of all households in a country

Question 2

Measure of inflation

Answer 2

CPI or CPIH to include housing

Question 3

Limitation of CPI

Answer 3

Does not include housing costs or mortgage interest repayments

Question 4

Deflation

Answer 4

Fall in general price level- economic stagnation

Question 5

Disinflation

Answer 5

Prices rise more slowly than they have in past years- prices still increasing though

Question 6

Demand pull inflation

Answer 6

When AD increases due to more government spending and/or private spending

Question 7

Cost push inflation

Answer 7

When AS decreases- the cost of production increases e.g. due to increased price of oil or EX rate has fallen

Question 8

Growth in money supply

Answer 8

More money means lower IR and more spending which leads to inflation (demand pull)

Question 9

UK inflation target

Answer 9

2%

Question 10

Inflation on international competitiveness

Answer 10

Damages international competitiveness- makes exports more expensive in other countries- worsens balance of payments

Question 11

Inflation on fixed incomes

Answer 11

If incomes don’t rise in real terms they will get worse off (if incomes are rising less than inflation)

Question 12

Inflation on interest rates

Answer 12

Higher inflation rates means IR increase (as interest rates drop, consumer spending increases, and this stimulates economic growth which can spur inflation)