Inflation - Chapter 12
- Created by: sammilaw
- Created on: 15-01-16 15:10
View mindmap
- Inflation
- Chapter 12
- Measuring inflation:
- CPI (Consumer Price Index)
- A weighted price index to measure prices of a typical 'basket of goods'
- The main official measure of inflation
- Criticisms:
- Does not include costs of housing
- An average measurement = less accurate
- Price increases could mask improvements in quality
- CPI (Consumer Price Index)
- Cost-push inflation:
- A rise in costs of imported raw materials
- i.e. inflation in other countries or a fall in the pound
- Rising labour costs
- Higher indirect taxes (tax on expenditure)
- Wage price spirals
- i.e. workers will be unwilling to accept pay rises less than the expected inflation rate
- A rise in costs of imported raw materials
- Consequences of inflation:
- Reduced international competitiveness
- Lack of investment
- Unanticipated inflation
- Menu costs - businesses having to frequently change their prices
- Shoe-leather costs - the time consumers spend 'shopping around'
- Effect of distribution of income
- i.e. those with a fixed income lose out
- Fiscal drag
- increases in the burden of taxation when tax allowances are not increased in line with inflation
- Hyperinflation
Comments
No comments have yet been made