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  • Created by: Lottie
  • Created on: 04-03-12 12:16
Preview of Inflation

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Inflation- Sustained rise in price level
Causes of inflation
Demand ­pull: where AD rises (can increase due to any of its components C+I+G+X-M) at a faster
rate than AS
Cost ­ push: increases in costs of production that causes a leftward shift in AS
Measuring inflation
CPI measured by 2 surveys
Expenditure & food survey- weighs up how much income spent on certain things by
Price survey- price change x weight= price index
Problems measuring inflation
CPI only measure an average household-pensioners ignored & bottom 4 %
Items only changed once a year-tastes & fashion change a lot quicker
Changes in quality of goods-price changes may have increased due to being upgraded
NOT inflation
CPI does not include housing costs- mortgage payments are a large part of household
Wage increased measured by RPI- more inclusive than CPI BUT less reliable for international


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