PPF/AFP Flashcards
(22 cards)
method 1 inflation rate
cpi yr2- cpi yr1/cpiyr1 times 100
method 2 inflation rate
cpi yr2/cpi yr 1 - 100 times 100
What is inflation?
A persistent rise in general price levels of goods and services.
What is deflation?
A fall in prices of goods and services.
Why is inflation important?
t affects purchasing power, business costs, wages, interest rates, savings, and investments.
How is inflation measured in Australia?
By the Consumer Price Index (CPI).
What does CPI measure?
Changes in prices of a basket of goods and services over time.
Why are weightings applied in the CPI?
give higher importance to items that are big in household spending
What does headline inflation measure?
Total inflation including all goods and services.
What is the target inflation rate in Australia?
2-3% per year.
What is underlying inflation?
inflation excluding volatile items to show long-term trends.
What is trimmed mean inflation?
An inflation rate calculated by removing the highest and lowest 15% of price changes.
What is weighted median inflation?
Inflation calculated using the median price change from the CPI basket.
What is cost-push inflation?
Inflation caused by increased production costs.
What are some causes of cost-push inflation?
Natural disasters, import prices, wage hikes, taxes.
What is demand-pull inflation?
Inflation caused by high demand exceeding supply.
How does inflation affect real income?
Real income falls if wage growth is slower than inflation.
What are examples of demand-pull inflation?
Increased consumer spending, wages, borrowing, or asset prices.
What is purchasing power?
The amount goods and services that income can buy; it falls with high inflation.
What is capital for labor substitution?
Replacing labor with machines to reduce labor costs, often due to inflation-driven wage increases.
How does inflation impact international competitiveness?
It weakens competitiveness by making exports more expensive.
How can inflation cause economic uncertainty?
By making future prices unpredictable, reducing business investment and consumer confidence.
