finance, year 9

• What is inflation?

  Rise in average price level over time
• What are the features of inflation?

  Fluctuates, influences interest rates, reduces money value
• How does inflation affect state pensions and benefits?

  Higher inflation reduces their real value
• How do businesses use inflation rates?

  To set annual pay rises for employees
• What is the cycle of GDP fluctuations called?

  Economic cycle
• What is the effect of inflation on average prices?

  Average prices rise over time
• How would you calculate inflation using milk prices?

  Compare average price over specified years
• What is the Consumer Price Index (CPI)?

  A measure using a basket of goods
• Why is a 'basket of goods' better than one good?

  It reflects overall consumer spending habits
• Why do they update the basket of goods over time?

  To reflect changing consumer preferences
• How do price rises affect households?

  They reduce purchasing power and savings
• How do price rises affect businesses?

  They increase costs and reduce profit margins
• How do price rises affect workers?

  They may lead to demands for higher wages
• How do price rises affect pensioners?

  They reduce the real value of pensions
• What is hyperinflation?

  Prices rise by more than +25% per year
• Who controls the inflation rate in the UK?

  The Bank of England
• What is the target inflation rate set by the Bank of England?

  2% (plus/minus 1%)
• Why do we aim for a 2% inflation rate?

  To maintain economic stability and growth
• What causes inflation?

  Too much demand and not enough supply
• How did the Russia/Ukraine war affect inflation?

  It cut off gas supplies and agriculture
• What is the main weapon the Bank of England uses to control inflation?

  Interest rates
• How does increasing interest rates help reduce inflation?

  It makes borrowing more expensive, reducing demand
• What happens to George's savings after one year at 2% interest?

  He has $1,020 at year-end
• How much does George pay back annually if he borrows $1,000 at 7% interest?

  $70 annually
• What is the problem with borrowing too much?

  It can lead to excessive debt and financial strain
• What are the effects of inflation on different groups?

  • Households: Reduced purchasing power
  • Businesses: Increased costs, reduced profits
  • Workers: Demand for higher wages
  • Pensioners: Reduced real value of pensions
• What are the causes of inflation and deflation?

  Causes of inflation:

  • Too much demand
  • Not enough supply
  • Too much money in circulation

  
  

  Causes of deflation:

  • Decreased demand
  • Increased supply
• How does the Bank of England manage inflation?

  • Sets interest rates
  • Aims for 2% inflation rate
  • Adjusts rates to control demand and spending
• What are the potential consequences of raising interest rates?

  • Higher borrowing costs
  • Reduced consumer spending
  • Potential job losses in businesses
• What is the role of money in society?

  Money acts as an enabler in the economy
• How does the cycle of money operate?

  Spending affects employment and earnings
• What is corporate tax?

  Tax paid by businesses on profits
• What is income tax?

  Tax paid by employees on earnings
• How can businesses contribute to the economy?

  Through investment and employee training
• What is the impact of increased employment on national wealth?

  It increases national wealth and reduces welfare claims
• What are the three sectors of the economy?

  Private, public, and charity sectors
• What is corporate social responsibility?

  Businesses' commitment to ethical practices
• What are the short-term effects of economic cycles?

  They can impact personal financial planning
• How can long-term economic cycles affect mortgages?

  They can lead to financial difficulties later
• What is a commuter belt?

  Area with increased population and costs