Economics

Define Inflation

Sustained increase in the general price level (& decrease in purchasing power)

Define deflation

Sustained decrease in general price level

Define disinflation

decrease in the rate of inflation

How is inflation measured

• basket of 740 goods are measured

• most common items are weighed heavier

• basket of goods are compared to previous year

What is the difference between CPI and RPI

• both measure inflation

• CPI doesn’t include housing costs while RPI does

• CPI is usually a lower value than RPI

• CPI is more commonly used to measure inflation

What is cost push inflation ?

• if cost of production increases, then firms increase prices to maintain profit

• inflation depending on cost of production

What is demand pull inflation ?

• inflation depending on demand

• if demand increases, firms increase cost to maximise profit

What are positive and normative statements ?

• positive → statement that can be fact checked

• normative → value judgement that can’t be fact checked

What is PED

• checks responsiveness of Qd to change in price

• % change in Qd / % change in price

• always negative

• NASBIT

what is YED

• checks responsiveness of Qd to change in income

• % change in Qd / % change in income

• positive = normal good (0>YED>1) , luxury good (YED>1)

Whats XED

• % change of Qd of good A / % change of price of good B

• positive = substitute good

• negative = complement good

What is demand

amount of people willing and able to buy a good or service

PASIFIC

What is the wage price spiral ?

• inflation occurs

• cost of living crisis so wages increase

• cost of production increases

• cost push inflation occurs

Define unemployment

Willing and able to work but unable to find a job

What are the measures of unemployment

• claimant count

• labour force survey

What is Labour force survey

• based on survey of 40,000 people who are willing and able to work but cant find a job

What is claimant count

• the measure of the number of people who claim job seekers allowance

What are the causes of unemployment

• Cyclical → decrease in demand for labour across whole economy

• Structural → decrease in demand for labour in specific sector

• Frictional → short term unemployment between jobs

• Seasonal → unemployed because nature of employment