Inflation

• What is the target rate of inflation set by the government?

  The target rate of inflation is 2% per year.
• What does the Monetary Policy Committee of the Bank of England do to control inflation?

  They use monetary policy to increase interest rates, which decreases spending and inflation rates.
• What are the two ways inflation is measured?

  Inflation is measured by the Retail Price Index (RPI) and the Consumer Price Index (CPI).
• What does the Retail Price Index (RPI) include that the Consumer Price Index (CPI) does not?

  RPI includes housing payments such as mortgages, council tax, and rent.
• Why is RPI usually around 1% higher than CPI?

  Because house prices, rent, and council tax fluctuate faster than other goods.
• What is inflation?


  Inflation is the increase in the prices of the same goods.
• What is deflation?


  Deflation is when the rate of inflation falls below 0%.
• What is disinflation?


  Disinflation is when the price of goods decreases.
• What is a price index?

  A price index is a measure of price changes.
• What is indexation?


  Indexation is changing a price based on the value of another.
• How does inflation affect people's ability to buy goods?

  As inflation increases prices, fewer people can afford to buy goods.
• How is price stability commonly measured?


  By changes in the Consumer Price Index (CPI).
• What is the UK government's inflation target?


  2%.
• What is the opportunity cost of high interest payments on national debt?


  It is money that could be spent on education or hospitals.
• How can high economic growth conflict with price stability?


  It can lead to pressure on resources, causing prices to rise too fast.
• What is inflation?


  A persistent increase in the general price level.
• How are inflation figures typically presented?


  On an annualized basis.
• Why is inflation considered an indicator of economic strength?


  High and unexpected inflation means goods and services become unaffordable.
• How is international competitiveness measured?


  By looking at the value of exports vs the value of imports.
• What is inflation?

  Inflation is a sustained increase in the cost of living or the general price level.
• How does inflation affect purchasing power?

  Inflation leads to a fall in the purchasing power of money.
• How is the rate of inflation measured?

  The rate of inflation is measured by the annual percentage change in consumer prices.
• What is the UK government's inflation target?

  The UK government has set an inflation target of 2% using the consumer price index.
• What is the role of the Bank of England regarding inflation?

  It is the job of the Bank of England to set monetary policy interest rates to control inflationary pressures.
• What is disinflation?

  Disinflation is a fall in the rate of inflation.
• How is the Consumer Price Index (CPI) calculated?

  A family expenditure survey is carried out covering over 40,000 households.
• What is deflation?

  Deflation occurs when the general price level falls.
• What is a representative basket of goods and services in CPI?

  A representative basket of goods and services is used with weights attached to each item's importance in people's expenditure.
• How many price quotations are collected each month for CPI?

  Each month, government officials collect 120,000 separate price quotations.
• What does the CPI measure?

  The CPI measures a household's average basket of goods price.
• What is a limitation of the CPI as a measure of inflation?

  The CPI is not fully representative and may be inaccurate for non-typical households.
• How do spending patterns affect CPI accuracy?

  Spending patterns differ among single people, couples, and families, affecting CPI accuracy.
• How does changing quality of goods affect CPI?

  Changes in quality may accompany price rises, affecting CPI accuracy.
• Why might new products affect CPI?

  New products may not be reflected in the CPI basket as few products are added or removed each year.
• What is demand-pull inflation?

  Demand-pull inflation occurs when rising demand in the economy increases prices.
• What is cost-push inflation?

  Cost-push inflation occurs when firms increase prices in response to rising costs.
• What is core inflation?

  Core inflation is the inflation rate excluding temporary factors.
• What is wage inflation?

  Wage inflation is caused by rising real wages.
• What is imported inflation?

  Imported inflation is caused by rising prices of imports.
• What is hyperinflation?

  Hyperinflation is inflation of over 1000% per year.