4.3.3 Consequences of Inflation

• Cost-push inflation can be caused by supply chain disruptions.


  True
• If the price of bread increases from £1 to £1.20 due to 20% inflation, a consumer's purchasing power has decreased
• Steps to measure inflation using CPI or RPI

  1️⃣ Select a base year

  2️⃣ Create a market basket

  3️⃣ Collect price data

  4️⃣ Calculate the index

  5️⃣ Compute inflation rate
• Rising consumer confidence and spending can lead to demand-pull inflation.
• What is inflation?

  General increase in prices
• The Retail Price Index (RPI) includes housing costs, while the Consumer Price Index (CPI) does not.


  True
• Demand-pull inflation occurs when there is an increase in aggregate demand
• Inflation is measured using the Consumer Price Index (CPI) or the Retail Price Index (RPI).CPI
• What is the key difference between CPI and RPI in measuring inflation?

  RPI includes housing costs
• What is cost-push inflation caused by?

  Rising production costs
• How does inflation affect purchasing power?

  Reduces it
• What is the first step in measuring inflation using CPI or RPI?

  Select a base year
• What is demand-pull inflation caused by?

  Increase in aggregate demand
• Cost-push inflation occurs when production costs increase.

  True
• Match the type of inflation with its definition:

  Demand-pull Inflation ↔️ Increase in aggregate demand

  Cost-push Inflation ↔️ Increase in production costs
• What is the definition of demand-pull inflation?

  Increase in aggregate demand
• Purchasing power decreases when inflation rises.


  True
• What happens to the real value of savings during inflation?

  It decreases
• Demand-pull inflation can lead to increased employment.

  True
• The Phillips curve shows an inverse relationship between inflation and unemployment.
• What does the Consumer Price Index (CPI) measure?

  Change in consumer prices
• Inflation is the general increase in the price level of goods and services in an economy over time
• Match the inflation measure with its definition:

  CPI ↔️ Measures the change in prices paid by consumers for a basket of goods and services

  RPI ↔️ Measures the change in prices paid by households for goods and services, including housing costs
• RPI includes mortgage interest payments, while CPI does not


  True
• What are example factors that cause demand-pull inflation?

  Rising consumer confidence and spending
• Inflation reduces the purchasing power of money over time


  True
• Inflation reduces the purchasing power of money, leading to the erosion of its real value
• What effect does demand-pull inflation have on employment?

  Increases employment
• The Phillips curve suggests an inverse relationship between inflation and unemployment


  True
• How does inflation affect government spending on healthcare?

  Increases spending
• Currency depreciation can offset the negative impacts of inflation on exports


  True
• What is one example of a factor that causes cost-push inflation?

  Rising wages
• Cost-push inflation can be caused by increases in the prices of raw materials or energy.
• What is one example of a factor that causes cost-push inflation?

  Supply chain disruptions
• Purchasing power refers to the quantity of goods and services that can be bought with a given amount of money.
• How does inflation affect the number of loaves of bread that can be purchased with £10 if the price rises from £1 to £1.20?

  Decreases from 10 to 8.33
• Inflation erodes the real value of savings by reducing their purchasing power.
• How does cost-push inflation typically affect employment?

  Decreases it
• Stagflation occurs when high inflation coexists with high unemployment.


  True
• Match the inflation measure with its definition:

  CPI ↔️ Change in consumer prices

  RPI ↔️ Change in household prices