Lesson 7 - Inflation

Question 1

Define Inflation

Answer 1

Average price of goods + services rising over time

Question 2

Define Deflation

Answer 2

Negative Inflation
Average prices of goods + services falling over time

Question 3

Define Disinflation

Answer 3

Inflation slowing down
Prices rising but at a slower rate

Question 4

What can inflation be caused by?

Answer 4

Money - Too much in supply, value drops
Increase in price of valued commodity
Overconsumption

Question 5

What are the impacts of inflation?

Answer 5

Potential fall in living standards
Economy slows - Less spending power, less consumption

Question 6

In what 3 ways does the Bank of England try to control inflation?

Answer 6

Setting a target (2%)
Removing money from circulation
Raising interest rates

Question 7

What is CPI?

Answer 7

Consumer Price Index
Govt tracks price of typical basket of goods per month

Question 8

How is CPI measured?

Answer 8

Household expenditure survey carried out
Typical basket of goods determined
Monthly, govt officials collect 120,000 separate price quotations from 141 locations of around 600 products in the basket
Changes in price weighted relative to importance in our spending

Question 9

What are the limitations of CPI?

Answer 9

Not representative of everyone
Slow to respond to new products
Doesn’t monitor quality changes within goods + services

Question 10

Give 2 other measures of inflation

Answer 10

CPIH - CPI + housing costs, difficult to measure accurately
RPI - Retail Price