Macro-inflation Flashcards
Define price level
average price of goods and services within an economy
Define inflation
Sustained genral ris in the price level across an economy
Define deflation
Sustained genral fall in price level across an economy
Define disinflation
Fall in the rate of income
Define Hyperinflation
Occurs when there are large levels of inflation
Define infation rate
% change in the price level over time
What would you call a decrease in price level by 2% per annum
Deflation
What would you call it when the rate of inflation falls from 4% to 2%
Disinflation
Wthat would you all it when the price level increases by 3% per annum?
Inflation
How are price levels measured?
in the form of an index
If the price index the base year is 100 and 110 in the nex year what is the rate of inflation?
10%
What are the 2 widley used price indexes?
- Consumer price index
- Retail price index
How are price indices calculated?
-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.
How many households take part in the living cost and food survey?
5,000 per year
How many separate price quotations does ‘Living Costs and Food Surveys’ use?
180,000
How many represntive consumer goods does ‘Living Costs and Food Surveys’ use?
720
Why are some products weighted?
-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.
What are the ‘shopping baskets’ the CPI uses?
Groups of items consumer tend to purchase
How does the CPI adapt the ‘shopping baskets’?
-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
What 2 new items were added and what 2 item was taken to the CPI in 2021
+Couscous
+Coffee sachets
-White chocolate
-Ground coffee
What is an index number?
An index number is a figure reflecting price or quantity compared with a base value
Why are index numbers useful?
-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
What index number does a base year have?
100
Do index numbers have units?
No (son no $,£ ect)
What are examples of index numbers
-Index of GDP or GNI
-Human Development Index (HDI)
-Exchange Rate Index
-Index of House Prices
What is the formular for calculating index numbers?
Index number in year Y= Data value in year Y/Base year value X100
What are the limitations of CPI?
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
What is the RPI?
-An alternative way of measuring the price level of the UK economy.
What does the RPI include which the CPI doesn’t?
RPI includes the costs of housing (mortgage interest costs and council tax for example) while CPI does not.
What is the UK’s inflation rate in August 2024?
2.2%
In 2022 which country had the highest inflation rate?
Venezuela over 1,000%
All economy experiencing both high inflation & high unemployment is said to be in a state of ……
Stagflation
