Inflation

Question 1

What is inflation?

Answer 1

General increase in price levels

Question 2

What is Deflation?

Answer 2

Fall in price levels where the level of aggregate demand is falling.

Question 3

How is Inflation measured?

Answer 3

Using CPI (consumer price index)

Question 4

2 types of Inflation

Answer 4

Demand-pull inflation
Cost push inflation

Question 5

What is demand-pull inflation?

Answer 5

Where aggregate demand is greater than aggregate supply at full employment level.

Question 6

What are the effects of aggregate demand?

Answer 6

If AD increases, there will be an increase in the general price levels

Question 7

What is aggregate demand?

Answer 7

The total demand of the economy

Question 8

Causes of demand pull inflation

Answer 8

A rise in consumer spending is encouraged by tax cuts and low interest rates, which will increase the number of loans taken out.
Sharp increases in government spending
Rising demand for resources by firms
booming demand for exports

Question 9

What is cost push inflation ?

Answer 9

inflation caused by rising business costs used to protect their profit margins.

Question 10

Reasons why costs might rise

Answer 10

Imported goods
Wage increases(where employees put pressure on employers to increase wages where employers recovered the money by increasing prices)
Increase in taxation

Question 11

Who are monetartists?

Answer 11

Economists who believe there is a strong connection between growth in money supply and inflation.

Question 12

The relationship between inflation and interest rates

Answer 12

Inflation It may be caused when households, firms, and governments borrow money from the bank to fund extra spending. This adds to the money supply because there are more bank deposits. The extra money lent by banks creates more demand and prices are rising. This type of inflation (Monetarists) is likely to happen if interest rates are low.