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15 Cards in this Set
- Front
- Back
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What’s inflation |
this is a persistent increase in the general price level over a given period of time |
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Why do we calculate inflation |
This is to measure the cost of living in a country. For example, a higher inflation increases the cost of living and life becomes more expensive |
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Name two methods to calculate inflation |
1) RPI 2) CPI |
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List steps of measuring inflation |
1) selection of the base year 2)sampling of basket goods which may be representative of all goods in the economy 3) finding out how households spends their money. The weighing on their expenditure across different goods 4) record how price changes . This is the % chance in price of goods in the basket 5) working out the weigheted price index. Which is W x change in price 6). Calculate the general change in price |
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Name causes and types of inflation |
a) demand pull inflation b) cost push inflation c) monetary inflation |
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What’s demand pull inflation |
This is a type of inflation caused by an increase in the AD more than AS |
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Formula of AD |
C+I+G+ (X-M) |
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What’s happens in the short run |
In the short run an economy operates below its full capacity this means an economy has more room to increase production |
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What happens in the long run of demand pull inflation |
This is when an economy operates at its full capacity. This means there is no more room to increase production. Since all resources at fully employed |
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What’s cost push inflation |
This is inflation caused by an increase in the cost of production |
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What happens in the short run of cost push inflation |
A fall in AS |
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What happens in the long run of cost push inflation |
Back (Definition) |
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What’s monetary inflation |
This is a type of inflation caused by an increase in the money supply. For example printing currencies |
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Explain monetary inflation |
This is a type of demand pull inflation since when there is an increase in money supply it leased to an increase in the AD due to a rise in income levels in an economy more than AS. |
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How is price and money correlated |
Money and supply are directly proportional. Therefore, and increase in money supply will cause an equal percentage increase in price. |
