Topic 5 - Inflation Macro

Question 1

Difference between inflation and disinflation

Answer 1

Inflation is a general rise in price level whereas disinflation is the rate of inflation falling

Question 2

Difference between disinflation and deflation

Answer 2

Deflation is a general decrease in price level whereas disinflation is the rate of inflation falling meaning inflation or deflation could be changing but at a slower rate

Question 3

“Basket of goods”

Answer 3

Basket of goods in economics is a very large “shopping basket” containing goods and services bought by households. As the prices of various items in the basket change over time so does the total cost of the basket.

Question 4

Why are weights used when calculating inflation?

Answer 4

The weights are meant to reflect the relative importance of the goods and services measured by their shares in the total consumption of households.

Question 5

Why do economists use index numbers?

Answer 5

Economists use index numbers to make comparisons over time

Question 6

How do you calculate an index number?

Answer 6

New price / Base year price X 100