4956100
Description
Mind Map by james liew, updated more than 1 year ago
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Created by james liew
over 8 years ago
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Inflation
- Inflation is defined as a steady and persistent
increase in the general level of prices. It's the rate
at which money loses its ability to buy things
- The Central Statistics Office employs 94 part
time price collectors who collect about 53,000
prices in 84 locations throughout the country
on the second Tuesday of every month
- The Consumer Price Index
- The official measure of inflation in Ireland.
It measures the price change of goods and
service consumed by all consumers
- How is the CPI constructed?
- National Average Shopping Basket: is
a selection of the most frequently
purchased goods and services
- Household Budget Inquiry: carried out
every five years to ensure index reflects
up-to-date purchasing patterns
- Decide on a Base Year and
Find the Prices
- Prices in the Current Year
are Collected
- National Average Shopping Basket: is
a selection of the most frequently
purchased goods and services
- Economic Uses
- Measures the Rate of Inflation
- Indicator of Country's Performance
- Used in Wage Negotiations
- International Comparison
- Measures the Rate of Inflation
- What Precautions should be
taken when using CPI?
- Not a Cost of Living Index
- Lags Behind Consumer Trends
- Quality Changes
in Products
- It's an Index of the
Average Consumer
- Not a Cost of Living Index
- The official measure of inflation in Ireland.
It measures the price change of goods and
service consumed by all consumers
- What Factors Cause Inflation?
- Demand Pull Factors: if
aggregate demand is greater
than aggregate supply, prices
will be forced upwards
- "Too much money
chasing too few goods"
- "Too much money
chasing too few goods"
- Cost Pull Factors: if a company experiences
a cost increase in its cost of production, it
will probably pass on this increase by
raising selling price of final good
- Increase in Wages
- Increase in commercial rates
- Increase in Wages
- Imported Inflation: if imported raw
materials rise in price, so does the cost of
production for manufacturers, so they
increase the selling price of finished goods
- Demand Pull Factors: if
aggregate demand is greater
than aggregate supply, prices
will be forced upwards
- What Problems are Caused
by High Inflation?
- Lower Standard of Living
- Wage Demands Increase
- Increase in Unemployment
- Loss of International Competitiveness
- Fixed Income Holders lose out
- Lower Standard of Living
- What Remedies are Available?
- Fiscal Policy (government): increasing direct
taxation would reduce demand, as consumers
could have less disposable income
- Monetary Policy (bank): reducing the amount
of credit available would reduce demand;
increasing rate of interest reduces demand
for loans, hence discourage investment
- Fiscal Policy (government): increasing direct
taxation would reduce demand, as consumers
could have less disposable income
- Deflation happens when
there is a general decrease
in average level of prices
- Benefits of Price Stability
- Consumers will tend to
spend, contributing to
economic growth
- Gov. revenue could
increase with more
taxes being collected
- Demand for wage increases
wouldn't be as urgent
- Consumers will tend to
spend, contributing to
economic growth
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