Retail Price Index and Inflation

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  • The Retail Price Index and Inflation
    • Inflation = An increase in GENERAL price level
      • Measured by: (The sum of the index in year x / The sum of the index in the base year) X100
      • In a period of inflation, money is the least desirable store of wealth because the value decreases.
      • People who borrow (debtors) benefit from inflation
        • The value of the repayment will have fallen
      • Balance of Payments = worse
        • Exports become more expensive for other countries -> less demand
        • Imports are relatively cheaper so demand increases
    • The Retail Price Index
      • Base year = 100
        • Another year is compared
      • Measures changes in the average basket of goods bought by a typical family
        • Weighting makes it possible to take account of the relative importance of spending on different items when measuring average price changes
      • Used to be used in the UK

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