inflation

Question 1

define cost push inflation

Answer 1

rising price levels caused by an increase in cost of production

Question 2

what diagram would we draw to indicate cost push inflation?

Answer 2

inward shift in sras

Question 3

what are some causes of cost-push inflation?

Answer 3

1. rising labour costs (increased min wage)
2. increased global prices for raw materials
3. rise in import prices
4. increase indirect taxes

Question 4

define demand-pull inflation

Answer 4

rising price levels caused by an increase in ad

Question 5

what diagram would we draw to indicate demand-pull inflation?

Answer 5

outward shift in ad

Question 6

what are the causes of demand pull inflation?

Answer 6

any changes to the components of ad
c+I+g+x-m

Question 7

what was the uk inflation rate in January 2026?

Answer 7

3%

Question 8

define hyperinflation

Answer 8

phase of extremely rapid inflation nearly always the result of mass money printing by the gov

Question 9

according to the weighted price index, what does larger spending mean?

Answer 9

higher weighting - spending patterns of household

Question 10

define stagflation

Answer 10

refers to stagnant economic growth, rising unemployment and high inflation

Question 11

what is the current uk unemployment rate?

Answer 11

5.2%

Question 12

define disinflation

Answer 12

when consumer prices are still rising but at a slower rate

Question 13

what is the wage price spiral?

Answer 13

ongoing process when people ask for wage rises in which the firms pass on increased costs of production onto consumers

Question 14

what are some causes of inflation?

Answer 14

1. weak exchange rate
2. house prices
3. wage price spiral
4. rising energy prices
5. increased c of p

Question 15

who is Milton Friedman?

Answer 15

-American economist who supported free markets with limited gov intervention
-created theory of monetarism
-critical of Keynes
argued:
-gov should control growth of money supply
-money supply should grow at fixed rate
-money supply is primary determinant of economic growth and inflation

Question 16

define monetarism

Answer 16

economic theory that money supply is the main factor for determining inflation and economic stability

Question 17

which policy is monetarists critical about?

Answer 17

fiscal policy as it is unpredictable

Question 18

what is the equation for fishers equation of exchange/quantity theory of money?

Answer 18

MV=PQ
money supply x velocity of money=price level x quantity of g/s

Question 19

define greedflation

Answer 19

charging unreasonable prices for a g/s in response to a situation of high demand or limited supply

Question 20

define shrinkflation

Answer 20

companies reducing the size of quantity of a product while keeping the prices the same

Question 21

who benefits from inflation?

Answer 21

stock investors
mortgage holders at fixed rate
debtors- value of money increase

Question 22

who does not benefit from inflation?

Answer 22

consumers
retirees
savers
lenders

Question 23

what are the 2 types of inflation?

Answer 23

cost-push inflation
demand-pull inflation

Question 24

why does demand-pull inflationary pressure occur?

Answer 24

greater pressure on existing factors of production to produce more output

Question 25

what 2 policies can be used to reduce demand-pull inflation?

Answer 25

1. contractionary monetary policy 2. contractionary fiscal policy

Question 26

how can we reduce cost-push inflation?

Answer 26

1. reduce inflation target by cutting wages 2. reduce vat and provide subsidies 3. central banks intervene to strengthen exchange rates

Question 27

what policy can be used to reduce high long term inflation rates?

Answer 27

supply side policies (interventionist/market based)

Question 28

what are 3 costs of high inflation?

Answer 28

1. inequality 2. high cost of borrowing for firms 3. reduced international competitiveness- lowers demand for a country's exports

Question 29

what was the inflation rate in the uk in February 2026?

Answer 29

3%

Question 30

What is the uk inflation target?

Answer 30

2%