Inflation

Question 1

What is inflation

Answer 1

Suistained rise in the price of goods and services across an economy

Question 2

What is deflation

Answer 2

Sustained fall in price level

Negative inflation

Question 3

What is disinflation

Answer 3

Inflation at a slower rate

Rate of increase in the general price of goods and services decrease

Question 4

What are the impacts on inflation on individuals

Answer 4

Uncertainty

Deter savings

Deter speculations

Question 5

What are the impacts on inflation on businesses?

Answer 5

Low confidence

Unstable profits

Question 6

What are the impacts on inflation on the distribution of income

Answer 6

Fluctuations in tax revenue

Question 7

High inflation could

Answer 7

Uncertainty which puts off investments and consumption meaning failure of businesses and firms

Make domestic produce less competitive than firms from low inflation countries

Randomly redistributes income

Question 8

How does the UK measure inflation

Answer 8

CONSUMER PRICE INDEX (CPI) but changed for international comparison to HICP HARMONISED INDEX OF CONSUMERS PRICES

Question 9

How is CPI constructed

Answer 9

Data collected from 6,000 households. They look at their basket and spending on 650 goods and services. Prices of goods and services measured monthly’s day recorded in index form

Each product has weight according to the percentage of income they take up and reviewed every year to show household expenditure patterns.

Percentage change in index represents rate of inflation

Question 10

How does Retail price index measure inflation

Answer 10

Used to analyse long term changes due to the fact that it was around for longer

Question 11

How do CPI and RPI differ

Answer 11

CPI is governments inflation target and excludes all housing costs (e.g. rent and council)