Macro-inflation

Question 1

Define price level

Answer 1

average price of goods and services within an economy

Question 2

Define inflation

Answer 2

Sustained genral ris in the price level across an economy

Question 3

Define deflation

Answer 3

Sustained genral fall in price level across an economy

Question 4

Define disinflation

Answer 4

Fall in the rate of income

Question 5

Define Hyperinflation

Answer 5

Occurs when there are large levels of inflation

Question 6

Define infation rate

Answer 6

% change in the price level over time

Question 7

What would you call a decrease in price level by 2% per annum

Answer 7

Deflation

Question 8

What would you call it when the rate of inflation falls from 4% to 2%

Answer 8

Disinflation

Question 9

Wthat would you all it when the price level increases by 3% per annum?

Answer 9

Inflation

Question 10

How are price levels measured?

Answer 10

in the form of an index

Question 11

If the price index the base year is 100 and 110 in the nex year what is the rate of inflation?

Answer 11

10%

Question 12

What are the 2 widley used price indexes?

Answer 12

1. Consumer price index
2. Retail price index

Question 13

How are price indices calculated?

Answer 13

-Prices of a representative range of goods and services (a basket of goods) need to be recorded on a regular basis.
-This basket is calculated from the ‘Living Costs and Food Survey’.
-The results of the survey are averaged out to find the average price of goods and this figure s converted in index number form.

Question 14

How many households take part in the living cost and food survey?

Answer 14

5,000 per year

Question 15

How many separate price quotations does ‘Living Costs and Food Surveys’ use?

Answer 15

180,000

Question 16

How many represntive consumer goods does ‘Living Costs and Food Surveys’ use?

Answer 16

720

Question 17

Why are some products weighted?

Answer 17

-Changes in the price level of some goods are more important than other goods.
-E.g. Food is more important than tobacco because a larger proportion of household income is spent on it.

Question 18

What are the ‘shopping baskets’ the CPI uses?

Answer 18

Groups of items consumer tend to purchase

Question 19

How does the CPI adapt the ‘shopping baskets’?

Answer 19

-Items used in the Consumer Prices Index (CPI) are reviewed each year. Some items are taken out and some are brought in to make sure the CPI is up to date and representative of consumer spending patterns
-Weights are also changed

Question 20

What 2 new items were added and what 2 item was taken to the CPI in 2021

Answer 20

+Couscous
+Coffee sachets
-White chocolate
-Ground coffee

Question 21

What is an index number?

Answer 21

An index number is a figure reflecting price or quantity compared with a base value

Question 22

Why are index numbers useful?

Answer 22

-A useful way of expressing economic data time series and comparing / contrasting information
-E.g.. rather than comparing 30.546 and 47.9 6534 202 and 205 are much easier

Question 23

What index number does a base year have?

Answer 23

100

Question 24

Do index numbers have units?

Answer 24

No (son no $,£ ect)

Question 25

What are examples of index numbers

Answer 25

-Index of GDP or GNI
-Human Development Index (HDI)
-Exchange Rate Index
-Index of House Prices

Question 27

What is the formular for calculating index numbers?

Answer 27

Index number in year Y= Data value in year Y/Base year value X100

Question 28

What are the limitations of CPI?

Answer 28

Few households are average – the published figure for inflation is rarely the actual rate of inflation experienced by different people
1. Not fully representative - it will be inaccurate for the ‘non-typical’ household e.g. non-car owners
2. Spending patterns: e.g. Single people vs those with childeren
3. Changing quality of goods and services: price of a good or service may rise, this may also be accompanied by improvements in quality/performance of the product
4. New products: CPI is slow to respond to new products and services – basket is changed each year but only a few items fall out / come in

Question 29

What is the RPI?

Answer 29

-An alternative way of measuring the price level of the UK economy.

Question 30

What does the RPI include which the CPI doesn’t?

Answer 30

RPI includes the costs of housing (mortgage interest costs and council tax for example) while CPI does not.

Question 31

What is the UK’s inflation rate in August 2024?

Answer 31

2.2%

Question 32

In 2022 which country had the highest inflation rate?

Answer 32

Venezuela over 1,000%

Question 33

All economy experiencing both high inflation & high unemployment is said to be in a state of ……

Answer 33

Stagflation