Macro - inflation ✔️

Question 1

Inflation

Answer 1

The general rise in price level over a given period of time, usually a month

Question 2

Deflation

Answer 2

The reduction of the general level of prices in a economy

Question 3

Disinflation

Answer 3

A decrease in the rate of inflation (the general price level is increasing, but at a slower rate than before) e.g. inflation falls from 5% to 4%.

Question 4

Consumer Prices Index (CPI)

Answer 4

the speed at which the prices of the goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices.

Question 5

What’s the limitation of using CPI at measuring the rate of inflation?

Answer 5

It does not measure price changes in regional, rural or remote areas.

Question 6

Retail Price Index (RPI)

Answer 6

It monitors the monthly change in prices of goods and services used by most households.

Question 7

Demand Pull Inflation

Answer 7

When demand for goods or services rises faster than the supply of those goods and services, the result is demand-pull inflation. And so people are willing to pay more for the product

Question 8

Cost push inflation

Answer 8

Cost-push inflation happens when there is a decline in the supply of goods and services and demand remains unchanged or even grows, driving prices and inflation higher

Question 9

The effect of inflation on consumers

Answer 9

The main impact on the consumer is the reduction in purchasing power that is caused by inflation. This means that their weekly spending will not buy the same quantity of goods/services as it used to.

Question 10

The effect of inflation on firms

Answer 10

• increase in the interest rate.
• potential lower sales due to lower real incomes

Question 11

The effect of inflation on workers

Answer 11

-salaries will be worth less as wage rises wont keep up with inflation.

Question 12

The effect of inflation on the government

Answer 12

raise nominal GDP and lower the public sector net debt to GDP ratio. However, persistently higher inflation is likely to push up gilt rates and increase the cost of servicing the debt

Question 13

The effect of inflation on society

Answer 13

A rise in inflation is likely to mean a rise in the cost of raw materials. Also, workers are likely to demand higher wages to cope with the higher cost of living