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1711210
Inflation
Description
A-Level Economics (Unit 2) Mind Map on Inflation, created by juliasutton on 26/11/2014.
No tags specified
economics
edexcel as unit 1
economics
unit 2
a-level
Mind Map by
juliasutton
, updated more than 1 year ago
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Created by
juliasutton
about 10 years ago
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Resource summary
Inflation
The rise in the general level of prices, sustained overtime
HyperInflcation
Zimbabwe
2008
inflation reached 150 000%
where costs of inflation are felt most
Demand Pull
Factor that causes inflation
too much many chasing too few goods
increase in aggregate demand
e.g. larger population demands more food, there is not enough so prices go up
Triggered by consumers
Cost Push
when it becomes too expensive for firms to supply their goods and services
can be caued by an increase in price of raw materials
Factor that causes inflation
Triggered by suppliers
Deflation
Decreasing nominal prices for goods and services
CPI
Consumer Price Index
measure of general level of prices in the UK
changes in CPI measure inflation
index number
shown as a percentage relative to the base year, value of 100
1996
'basket of goods'
650 goods and services
prices are collected monthly
from 7,000 households
and compared with that of a year ago
goods are weighted
weights show the proportion of income spent on each item
reflects spending habits of UK
updated regularly to reflect spending habits of UK
if demand for a product goes up or down the survey will pick it up
either being included or excluded from the basket
e.g. in 2013
champagne re[laced by white rum
due to technology updates
e.g new phones
doesn't include mortgages or rents
sceptical?
7,000 households not enough to represent whole population
doesn't include top and bottom 4% of earners
doesn't include pensioners
Doesn't reflect unusual spending habits
RPI
alternative measure of inflation
older
retail price index
a measure of the average prices in the UK
Includes housing costs
Interest rates
raised in a measure to reduce rate of inflation
if they are cut, it is a sign that inflation is not a threat
cost of borrowing
rewards of saving
UK inflation
Target of 2%
achievement of this target is down to Monetary Policy Commitee
meet monthly and set base rate of interest rate
they fail if inflation is
above 3%
below 1%
for stability and control
protects savers
competitive
protects trade
Impacts
prices are forced up rapidly
but wages are not
people can't afford as much
decreased trade
countries don't want to trade if your currency is worthless
benefits those in debt
becomes worthless
bad for savers
become worthless
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