2.1.1b

Question 1

define inflation

Answer 1

inflation is the sustained increase in the general level of prices

Question 2

what is the consumer price index

Answer 2

the cpi is a measure of inflation which also provides index to standard of living for households

Question 3

what is demand pull inflation

Answer 3

this is where an increase in AD leads to prices to increase

Question 4

what is cost push inflation

Answer 4

this is where an increase in firms costs is passed on to consumers with higher prices

Question 5

what is the impact of inflation on prices

Answer 5

if inflation increases, price increases

Question 6

what is the impact of inflation on wages

Answer 6

if inflation increases, wage demands would increase, increasing the threat of strike action, increasing wages

Question 7

what is the impact of inflation on unemployment

Answer 7

inflation leads to higher prices, which leads to lower sales, which leads to less producing needed, which leads to less workers needed, which leads to more unemployment

Question 8

what is the impact of inflation on exports

Answer 8

if inflation increases, price of uk goods increase, demand from elsewhere decreases, exports decrease

Question 9

what is the impact of inflation on menu costs

Answer 9

if inflation increases, firms will have to keep printing out changing price lists, change websites and staff will be needed for extra work, this leads to an increase in costs, increasing menu costs

Question 10

what is the impact of inflation on shoe leather costs

Answer 10

if inflation increases, prices will be changing rapdily, meaning firms will have to check prices more often, leading to wasted time, leading to higher shoe leather costs

Question 11

what is the impact of inflation on BC and CC

Answer 11

if inflation increases, firms will make less sales, leading to less profit made, leading to decreased BC.
if inflation increases, prices will increase, leading to less consumption, leading to less aggreggate demand, leading to more cyclical unemployment, leading to less CC

Question 12

what is the impact of inflation on investment

Answer 12

inflation increases, firms make less profit, BC decreases, investment decreases