Cards (38)

    • What is inflation?
      Sustained increase in prices
    • Inflation reduces the purchasing power of money.
    • Demand-pull inflation occurs when aggregate demand exceeds aggregate supply
    • What is the primary cause of cost-push inflation?
      Rising production costs
    • The aggregate demand formula is AD = C + I + G + (X - M)</latex>.
    • What does inflation do to the value of money?
      Reduces its purchasing power
    • Demand-pull inflation is caused by excess aggregate demand
    • Demand-pull inflation occurs when aggregate demand exceeds aggregate supply.
    • Cost-push inflation arises from rising costs of production
    • Steps leading to cost-push inflation:
      1️⃣ Rising production costs
      2️⃣ Firms increase prices to maintain profits
      3️⃣ General price level rises
    • How does inflation affect consumers?
      Reduces purchasing power
    • Inflation can lead to higher prices for businesses.
    • For consumers, inflation reduces their purchasing power.
    • What is the impact of inflation on businesses?
      Increases production costs
    • Inflation can decrease the value of consumer savings.
    • Inflation reduces purchasing power and potentially decreases the value of consumer savings.
    • What is one effect of inflation on businesses?
      Increased production costs
    • Inflation can lead to changes in investment, employment, and economic growth.
    • If inflation is 2%, what is the effective value of £1000 savings after one year?
      £980
    • The formula for calculating the future value of money considering inflation is FV=FV =PV(1+r)n PV (1 + r)^{ - n}, where PVPV is the present value.
    • Inflation reduces the purchasing power of money.
    • What is the definition of inflation?
      Sustained increase in prices
    • Demand-pull inflation occurs when aggregate demand exceeds aggregate supply
    • What is an example of a cost-push inflation cause?
      Rising oil prices
    • Cost-push inflation arises from excessive aggregate demand.
      False
    • Cost-push inflation reduces aggregate supply
    • Match the type of inflation with its description:
      Cost-Push Inflation ↔️ Rising production costs
      Demand-Pull Inflation ↔️ Excessive aggregate demand
    • What are the two primary indices used to measure inflation?
      CPI and RPI
    • The CPI uses a geometric mean, making it less sensitive to outliers
    • The RPI is calculated as the arithmetic mean of price changes.
    • How does inflation affect consumers?
      Reduced purchasing power
    • The formula for the future value of money considering inflation is FV=FV =PV(1+r)n PV (1 + r)^{ - n}, where rr is the inflation rate
    • What is an example of a monetary policy to control inflation?
      Raising interest rates
    • Fiscal policy lowers demand-pull inflation by reducing aggregate demand
    • Reducing inflation always leads to higher unemployment.
    • What is one challenge in managing inflation related to economic growth?
      Slowed economic growth
    • Inaccurate inflation forecasts make policy decisions more difficult
    • External shocks, such as oil price spikes, can unexpectedly affect inflation.