Measuring Inflation

Question 1

Inflation definition

Answer 1

Inflation - the general and continuous rise in prices

Question 2

Deflation v Disinflation

Answer 2

Deflation - general and continuous FALL in prices
Disinflation - fall in the RATE of inflation

Question 3

Consumer Price Index (CPI)

Answer 3

• a measure of the price level to measure inflation

Question 4

Limitations of CPI -

Answer 4

• The basket of goods is only representative of the average household ie. married couple with children vs sinle ouseold ave different basket of oods
• Different demographics have different spending patterns.
• CPI cant indicate te quality of foods

Question 5

Producer Price Index (PPI)

Answer 5

• used to measure the change in te price of a typical basket of oods bout and sold by te manufacturers of an economy
• used as an indicator of future trends in the rate of inflation (CPI)