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Inflation
Chapter 21 Economics
| Question | Answer |
|---|---|
| Define Inflation | A steady and persistent increases in the general level of prices over a period of time. |
| Who calculates the Inflation rate? | Central Statistics Office |
| What is the official measure of inflation called? | Consumer Price Index |
| What is the formula for a simple price index? | Price in given year/price in base year * 100 |
| What is meant by the "weight" in a composite price index? | The % of income spent on the good |
| What is needed to construct the CPI? | National Average Shopping Basket Household Budget Inquiry Base Year Collection of current prices |
| How many categories of expenditure are there in the shopping basket? | 12 |
| Name 5 categories of expenditure. | Food & non-alcoholic beverages Alcoholic beverages & tobacco Clothing & Footwear Housing, water, electricity, gas etc. Furnishings & equipment Health Transport Communications recreation & culture Education Restaurants & Hotels Miscellaneous |
| How often is the Household Budget Inquiry carried out? | Every 5 years |
| State three economic uses of the CPI | Measures inflation International Competitiveness Measures performance Index linked savings & investments Index linked to tax & social welfare Wage negotiations |
| State three Limitations of CPI? | Average Not cost of living Quality Outdated weights Outdated trends Substitution |
| Name 3 of the key causes of inflation | demand pull cost-push imports government induced |
| Name 3 methods the government uses to tackle inflation | Fiscal Policy Monetary Policy Partnership Agreements |
| Name 3 problems are caused by high inflation? | Lower Standard of Living Speculation Encouraged Borrowing Encouraged Wage Demands Loss of International competitiveness Savings discouraged Difficulty in attracting FDI Increase in Unemployment Fixed Income Holders |
| What is deflation? | A general decrease in the average level of prices. |
| What is the main problem with deflation? | Consumers may postpone purchases, expecting it to cost less soon, causing consumer demand to fall and thus affecting employment and growth. |
| List three benefits of price stability | Consumers will tend to spend Govt revenues will increase: more from taxation e.g. VAT Wage increases not as urgent Purchasing power maintained e.g. old age pension Savings may increase if the level of inflation is lower then the rate of interest. |
| What does HICP stand for and who measures it? | Harmonised Index of Consumer Prices Eurostat |
| Quantitative Easing | The supply of money grows as a faster rate than a country's production of goods and services. |
| List three economic effects of quantitative easing? | Inflation Increased imports Fall in exchange rates Fall in interest rates |
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jennymarshall
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