Inflation

• What is inflation?

  A sustained rise in the general price level
• What is deflation?

  A sustained fall in the general price level
• What is disinflation?

  A fall in the rate at which the general price level is rising
• How is inflation measured?

  Consumer Price Index
• How is CPI measured?

  Data is collected about the prices of the 700 most commonly used goods. Each item is assigned it's own weight.
• Give some limitations of using CPI as a measure of inflation:

  • Doesn't include housing costs
  • Sampling issues
  • Some people's spending patterns may not be representative
• What's the difference between CPIH and CPI?

  CPIH includes owner-occupiers' housing costs, while CPI does not
• What is demand-pull inflation?

  Increase in prices due to excessive demand for goods and services
• What is cost-push inflation?

  Increase in prices due to increased production costs, such as wages or raw materials
• What are the three causes of inflation?

  • Demand-pull
  • Cost-push
  • Increase in money supply