Theme 2.1.2

Question 1

Consumer Price Index (CPI)

Answer 1

• Measure that tracks changes in the average price level.
• weighted price
• calculated by comparing the current prices of the items in the basket to the items in a base year or period.
• %🔺 reflects the inflation / deflation rate

Question 2

Deflation

Answer 2

General price level for goods and services falling.

Question 3

Demand - side causes of Inflation

Answer 3

• Deep fall in AD causing a recession
• high level of spare supply capacity

Question 4

Challenges measuring inflation regarding CPI

Answer 4

• consumer preferences evolve over time
• substitution
• Subgroups: CPI represents the average consumer (inflation experience can vary among groups)

Question 5

Supply-side causes of deflation

Answer 5

• improved labour productivity
• technological advancements
• strong (rising) exchange rate causing import prices to fall