THEME 2 - Topic 2 - Inflation, U/E + Balance Of Payments

Question 1

Define inflation

Answer 1

A sustained rise in the average price level of an economy, causing the value of money to fall.

Question 2

What method is inflation in the UK measured by?

Answer 2

CPI since 2004 by the ONS.

Question 3

Define a CPI

Answer 3

The consumer price index is a measure of the average level of prices in the UK, the rate of change of which has been used as the government’s inflation target since 2004.

Question 4

Name 5 disadvantages of using CPI to measure inflation

Answer 4

1. Different families have different tastes
2. Base year has to have stable prices
3. Over long periods CPI becomes meaningless
4. New products may not be included- missed trends and updated frequently
5. Measures of price changes do not take into account quality of goods

Question 5

What is the formula for rate of inflation?

Answer 5

Sum (% change in price x weight of good) = inflation

Question 6

How often is inflation updated?

Answer 6

Monthly.

Question 7

What is the CPI based on?

Answer 7

A basket of commodities.

Question 8

How many goods/services are collected by the ONS?

Answer 8

Approximately 750.

Question 9

How many outlets across the whole of the UK are used in CPI?

Answer 9

180,000.

Question 10

What do they do with the basket commodities?

Answer 10

Calculate an average price for each good in the current year, and compare this to the base year by calculating a percentage change.

Question 11

What type of index is a CPI?

Answer 11

Weighted index.

Question 12

How does the ONS calculate the weight of goods?

Answer 12

By using the Living costs + food survey.

Question 13

How many households take part in the Living costs + food survey?

Answer 13

4,000.

Question 14

What are the 4,000 households asked to record annually?

Answer 14

Their expenditure over 2 weeks.