Lesson 7 - Inflation

Question 1

Define inflation?

Answer 1

Inflation is when the average price of goods and services is rising over a period of time

Question 2

Define deflation?

Answer 2

This is negative inflation, when average prices are falling over time

Question 3

Define disinflation?

Answer 3

Occurs when the rate of inflation is slowing down, prices are still rising but at a slower rate

Question 4

What is the inflation target of the UK government?

Answer 4

2%

Question 5

What is the job of the Bank of England?

Answer 5

To set monetary policy interest rates so that inflationary pressures are controlled and the inflation target is reached

Question 6

How is inflation measured?

Answer 6

The consumer price index

Question 7

Give a limitation of CPI as a measure of inflation?

Answer 7

CPI is not representative of everyone, everyone has different spending habits

Question 8

Give another limitation of CPI as a measure of inflation?

Answer 8

New products, CPI is slow to respond to new products

Question 9

Give another limitation of CPI as a measure of inflation?

Answer 9

Changing qualities of goods and services, CPI takes into account changes in prices but not changes of quality

Question 10

Give another measure of inflation?

Answer 10

Retail price index, RPI