Topic 1-Measuring inflation

Question 0

Cost push inflation

Answer 0

Occurs when there is an increase in the price of raw material therefore becomes very expensive for firms to supply their goods and services

Question 1

Inflation

Answer 1

Is the increase in normal prices of goods and service and a decrease in the value of money over a long period of time

Question 2

Demand pull inflation

Answer 2

Aggregate demand in an economy outdoes aggregate supply. Too much money chasing too few goods

Question 3

3 consequences of inflation

Answer 3

• Good for borrowers bad for savers
• shoeleather
• people have to be fired or made redundant if hyper inflation occurs

Question 4

How to measure inflation

Answer 4

CPI (consumer price index)

RPI (retail price index)

Question 5

CPI (consumer price index)

Answer 5

• measure of inflation. ONS(office of national statistics) sends its researchers around the country each month to gather the prices of a ‘basket’ of goods and services to represent a typical family. The goods are weighted and this shows the proportion of income people spend on these goods
• basket including 700 goods
• 7000 households
• doesn’t include housing costs

Question 6

Hyperinflation

Answer 6

Extremely rapid or out of control inflation

Can cause the currency to change

Question 7

Zimbabwe’s inflation rate

Answer 7

11.2m%

Question 8

Uk inflation rate

Answer 8

January CPI= 0.3%

rpi=1.1%

Question 9

Deflation

Answer 9

Is the decrease in normal prices for goods and services and increase in the value of money

Question 10

Shoe leather

Answer 10

shoe-leather costs refer to the time and effort people take to minimize the effect of inflatio

Question 11

How to measure inflation (calculation)

Answer 11

The change/base year X100

Question 12

How Is the price index is measured

Answer 12

• living cost and food survey collects information from 7000 households in the UK
• weights assigned to each good
• weights show what proportion of income is spent on goods that are bought by the average household
• price survey is undertaken once a month about the changes in the price level of 700 goods and services used
• price changes are multiplied by the weights to give a price index

Question 13

Disadvantages of cpi

Answer 13

• may not be a representative figure of the changes in living costs as it does not include housing costs
• people’s spending patterns may not be representative

Question 14

How to calculate an index number

Answer 14

Base year x (new price-old price) / old price