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15 Cards in this Set
- Front
- Back
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Inflation |
A rise in the general price level over time AND a fall in the value of money |
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CPI |
Consumer Price Index- measure of the level of prices by using a basket of goods |
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RPI |
Retail Price Index- CPI+ housing costs, is usually higher than CPI |
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Three limitations of using CPI |
-excludes large housing costs such as mortgages and rent -problems with sample, only 57% reply and might not give accurate info -only an average, rise in price levels for an individual depends upon what goods they buy |
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Three causes of inflation |
-demand pull -cost push -money supply |
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Demand pull inflation |
An increase in the price level caused by an increase in AD |
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Cost push inflation |
Increase in price level caused by an increase in costs of production making goods more expensive |
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Money supply |
The amount of spending power in the economy. Cash/bank deposits |
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Anticipated inflation |
Planned increase in the price level, usually due to government intervening in money supply, exchange rates etc |
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Unanticipated inflation |
When inflation unexpectedly rises, possibly due to something out of government control or from an unintended consequence |
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Three negative and one positive effects of inflation on consumers |
-purchasing power decreases so can buy less- standard of living decreases -real value of savings fall -people on fixed incomes struggle ~those with high level of debt benefit |
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Three problems and one positive caused by inflation for firms |
-loss of international competitiveness -increased menu costs -increased uncertainty leads to decreased investment ~increased prices may be a signal for firms to produce more and make more profit |
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One positive and negative effect of inflation for the government |
-difficulty of ensuring public sector wages and pensions increase with inflation ~inflation reduces value of national debt |
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One positive and negative effects of inflation on workers |
-hard to gain wage increases to keep real income the same if in price elastic labour ~some workers will gain pay rises above inflation |
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Three problems with deflation |
-discouraged consumer spending as it will be cheaper in the future -increased value of debt for consumers, businesses and government -increased real wage unemployment as people don’t like their wages being cut so would rather seek employment, cost to individual and government through benefits |
