LS3 - Inflation Flashcards
What is inflation, deflation and disinflation?
Inflation is the sustained increase in the cost of living. Disinflation is fall in the rate of inflation. Deflation is the negative inflation so a decrease in the cost of living.
How do I calculate the rate of inflation using the CPI?
You take the price index in the year wanted and multiply it by the questionnaire finding.
What are the limitations of using the CPI
It is not full representative, innacurate for anomalies like the non typical households
What is RPI as an alternative measure of the rate of inflation?
Retail price index, it includes housing costs which allows RPI to have a higher value than CPI
What are the causes of inflation?
Demand pull (this occurs when total demand for goods and services exceed total supply) , cost push (this occurs when the costs of production for a business increases), growth of the money supply (this occurs when an economy’s money supply is increased more quickly than the economy’s growth rate.
What is the effects of inflation on consumers, firms, the government and workers?
Inflation allows wealthy consumers to win due to asset price inflation. Exporting firms may lose sales and profits if they become less competitive due to rising inflation. The government target a low inflation rate as a goal to allow the cost of living to become affordable. The workers in low paid jobs will lose from rising inflation as they have little bargaining power.
