Ch. 25

• What does inflation measure?

  The rate of change of the average price level
• How is inflation commonly expressed?

  As a percentage annual rate of change
• What is an index number?

  A way to compare a variable with a base observation
• What does the retail price index measure?

  The average level of prices relative to a past year
• What is the consumer price index (CPI)?

  A measure of the general level of prices in the UK
• Since when has the CPI been the government's inflation target?

  Since December 2003
• What does CPIH account for?

  Housing costs of owner-occupiers and council tax
• What is the retail price index (RPI)?

  A measure of the average level of prices in the UK
• What is deflation?

  A fall in the average level of prices
• What initiates cost-push inflation?

  An increase in the costs faced by firms
• What initiates demand-pull inflation?

  An increase in aggregate demand
• What does money stock refer to?

  The quantity of money in the economy
• What is disinflation?

  A fall in the rate of inflation
• What is hyperinflation?

  A situation with extreme or excessive inflation rates
• What are the key types of inflation?

  • Cost-push inflation: Initiated by rising costs for firms
  • Demand-pull inflation: Initiated by increasing aggregate demand
  • Hyperinflation: Extreme or excessive inflation rates
  • Deflation: A fall in the average level of prices