1 / 7

Understanding Inflation: Definitions, Causes, and Measurement in the Economy

Inflation refers to a general and persistent rise in prices, measured as a percentage change. It is important to differentiate between inflation, deflation, and disinflation. Inflation can be caused by increased aggregate demand (demand-pull inflation) or by rising production costs (cost-push inflation). On the measurement front, the Consumer Price Index (CPI) and the Retail Price Index (RPI) are key tools used to assess price levels in an economy, providing valuable insight into economic health and consumer spending patterns.

lesley-matthews
Télécharger la présentation

Understanding Inflation: Definitions, Causes, and Measurement in the Economy

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 32 Inflation

  2. What do we call the verb to “blow up a balloon” • to “inflate” • So what is inflation in the economy? →Brainstorm a definition • Inflation = a general and persistent rise in prices. It is shown as a % • Deflation = a decrease in the general price level of goods and services. May also be used to refer to a period where aggregate demand (total demand in an economy) is falling. • This should not be confused with disinflation, a slow-down in the inflation rate (i.e. when inflation declines to lower levels). • So when inflation slows from 3% p .a. to 2% p.a. this is disinflation not deflation, as prices still increased by 2%

  3. How is inflation measured? (in the UK) • Brainstorm • Consumer Price Index (CPI) = • Every month the government records the prices of about 600 G & S purchased by over 7,000 families. They then work out an average monthly price & convert it to an index number to allow comparisons to be made. http://www.youtube.com/watch?v=Si37yjZM-SA CPI 2:20 • Retail Price Index (RPI): includes house prices & council tax.

  4. What is an index? • Eg. of an index; • Base (first) year is set to 100. • If in Year 1 prices ↑ 25% the index figure = 125 • If in Year 2 prices ↑ 10% the index figure = 125 + (125 X 10%) = 137.5 • Therefore we can see a general price ↑ of 37.5% over 2 years. • Do Q. 1 P147

  5. What causes inflation? • Demand – pull inflation • What will happen to prices if there is an ↑ in agg. demand? Show on a demand/ supply graph. • What may cause an↑ in agg. demand? • ↑consumer spending due to tax cuts or ↓ in i/r’s. • ↑ in govt. spending • ↑ in demand for resources by firms • ↑ I demand for exports • Do Question 2 P. 149

  6. What causes inflation (2)? 2. Cost – push inflation • ↑ prices of factors of production means ↑in costs for producers. Show the effects of this on a demand/ supply graph. What happens to prices? • What may cause an↑ in prices of factors of production? • ↑imported prices, e.g. oil • ↑ wages because of strong trade unions • ↑ tax e.g. VAT

  7. What causes inflation (3)? 3. Money Supply = total amount of money in an economy • An ↑ in MS → ↑ in agg. demand → inflation • How can the govt. ↑ MS? • ↑ notes/ coins (printing money) • ↑ borrowing to fund spending • http://www.youtube.com/watch?v=bibMshyRabE causes of inflation 3 mins • Exam practice • Task: Investigate inflation. Same country as for GDP

More Related