inflation and deflation Flashcards
what is inflation
is a sustained rise in an economy’s general price level
what does inflation cause in the price of goods/services
it causes the prices of goods and services to go up
what is hyper inflation
is a phase of extremely rapid inflation
what are the two most likely reasons for hyper inflation
- overprinting of money so assets become worthless
- a collapse in real output/ supply
what is deflation
a sustained period where the general price level is falling
what affect does deflation have on AD
AD falls - creating a negative output gap where the level of production GDP is well below potential
what is disinflation
a fall in the percentage rate of inflation - consumer prices are still rising but at a slower rate e.g.( from 7% to 2%)
what are inflation expectations
describes what people and businesses expect to happen to consumer prices in the future
what is the wage-price spiral
when workers bid for higher wages as their real income is eroded by fast-rising prices
how can the wage-price spiral affect inflation
it can lead to more cost-push inflation
what causes the wage-price spiral
when there is a high inflation as people expect higher prices so they have higher wage claims
what is stagflation
stagnant (slow) economic growth, rising unemployment, and a high rising inflation.
what is the price level
the average price of goods and services in an economy
what is the consumer price index (CPI)
the UK’s preferred price index for measuring the price level and inflation
what is the rate of inflation
the rate at which the price level rises over a period of time
does the CPI or RPI take housing costs into account
RPI does
what is CPI used for
the Bank of England Inflation target
what is RPI used for
Index Welfare Benefits
