inflation

Question 1

what is inflation?

Answer 1

inflation is the average increase in price levels of goods and services from one year to the next

Question 2

what is disinflation?

Answer 2

disinflation is the average increase in price levels but at a slower rate

Question 3

what can inflation be defined as in monetary terms?

Answer 3

inflation can also be defined as the fall in the vale of money

Question 4

what is hyperinflation

Answer 4

hyperinflation is the rapid increase in price levels and the the quick loss of the value of money

Question 5

what are the two main measurements used for inflation?

Answer 5

the two main measurements of inflation are the retail price index (RPI) and the consumer price index (CPI)

Question 6

what are the two surveys used to calculate the RPI?

Answer 6

the two surveys used to calculate the RPI are the Living Costs and Food Survey and a survey based on prices

Question 7

what is the Living Costs and Food Survey used to find out?

Answer 7

the Living Costs and Food Surveys are used to find out:

• what people spend their money on
• the proportion of income spent on these items

Question 8

what is the Living Costs and Food Survey used to work out?

Answer 8

the Living Costs and Food Survey are used to work out the relative weighting of each item

Question 9

what does the second survey based on prices measure?

Answer 9

the second prices based on prices measures the changes in prices of around 700 of the most commonly used goods and services

Question 10

what are the goods and services referred to as?

Answer 10

the goods and services are referred to as the ‘basket of goods’

Question 11

what are the items chosen for the survey based on?

Answer 11

the items chosen for the survey are based on the Living Costs and Food Survey

Question 12

what is the consumer price index (CPI)?

Answer 12

the consumer price index is similar to the RPI but it excludes some items

Question 13

what items are excluded from the CPI?

Answer 13

the two main items excluded from the CPI are:

• mortgage interest payments
• council tax

Question 14

how many people does the Living Costs and Food Survey survey?

Answer 14

the Living Costs and Food Survey surveys around 6000 households

Question 15

what is the official measure of inflation in the UK?

Answer 15

the official measure of inflation in the UK is the CPI

Question 16

what are the limitations of RPI and CPI?

Answer 16

the limitations of RPI and CPI are that:

• the RPI excludes all households in the top 4% of incomes
• the CPI covers a broader range on the population but it doesn’t take into the account of mortgage interest payments and council tax
• the information provided in the surveys may be inaccurate
• the basket of goods only changes once a year so it might miss out on some short-term changes

Question 17

what are the RPI and CPI used to determine?

Answer 17

the RPI and CPI are used to determine wage and state benefits

Question 18

what are the RPI and CPI used to measure?

Answer 18

the RPI and CPI are used to measure changes in the UK’s international competitiveness