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Inflation
| Question | Answer |
|---|---|
| Define inflation | A steady and persistent increase in the general level of prices |
| Who calculates inflation in Ireland? | The central statistics office by calculating a consumer price index |
| Name the five steps in constructing a composite price index | Choose a base year and let price equal 100. Select goods and find prices for each good for all years in the index. Construct a simple price index for each good. Multiply the simple price index by the weight. Add to get the composite price index. |
| What is the consumer price index? | A consumer price index (CPI) measures changes in the price level of market basket of consumer goods and services purchased by households. It is the official measure of inflation in Ireland. |
| What kind of goods are in a national average shopping basket? | The most frequently purchased goods and services |
| Name 12 categories of expenditure | Food and drink. Alcohol & tobacco. Clothing. Housing costs. Furnishings. Health. Transport. Communications. Recreation. Education. Restaurants and hotels. Miscellaneous. |
| How often are household budget inquiries conducted? | Every 5 years |
| What are the 6 economic uses of the consumer price index? | Measures inflation. International comparisons. Indicator of government performance. Indexation of savings and investments. Used in wage negotiations. Used by government tax bands. |
| What 6 precautions should be taken when using the CPI? | An index of the average consumer. Not a cost of living index. Lags behind consumer trends. Static weights. Quality changes not accounted for. Substitution of products |
| Name four causes of inflation | Demand pull factors. Cost push factors. Imported inflation.. Government induced inflation. |
| Name three solutions to inflation | Fiscal policy. Monetary policy. Partnership agreements. |
| Name 9 problems caused by inflation | Lower standard of living. Fixed income holders. Speculation encouraged. Borrowing encouraged. Wage demands. Loss of international competitiveness. Savings discouraged. Difficulty attracting FDI. Unemployment. |
| Define deflation | A reduction of the general level of prices in an economy |
| Name five benefits of price stability | Increased demand employment and economic growth. Increased government revenue. Weaker demand for wage increases. Pensioners better off. Savings and hence investment may increase if the rate of inflation is kept below the rate of interest |
| What is a constant tax price index? | A price index which keeps the indirect tax part of a price increase constant |
| Why is a constant tax price index useful? | It can be used in wage negotiations |
| What is the correct index to use for national comparisons? | Consumer price index |
| What is the correct index to use for EU comparisons? | Harmonised index of consumer prices |
| What are the economic effects of a country's money supply grows at a faster rate than its production of goods? (Quantitative easing) | Inflation increases. Imports rise. Fall in exchange rate. Interest rates will fall (Keyne's liquidity preference theory) |
| What are the economic effects of a country's production of goods growing at a faster rate than its money supply? | Deflation. Unemployment + falling demand. Fall in imports. Fall in exchange rate. Interest rates will increase. |
Created by:
JackEatonK98
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