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

• CPI - the consumer price index

• basket of 740 goods are measured & are weighted according to importance

• Average price level is calculated and then turned into index number and compared to previous years

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/necessity (0>YED>1) , luxury good (YED>1)

• inferior good = negative

Whats XED

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

• positive = substitute good (XED>1 is strong sub)

• negative = complement good

What is demand

the amount consumers are willing and able to buy of a good or service at any given price or time

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

What is the active population ?

what is the inactive population

active → people of working age (16-64) who are actively working or actively seeking work

inactive → people of working age (16-64) who are not able to work and not actively seeking work

GDP definition

gross domestic product, measures the quantity of goods and services produced in an economy

real GDP definition

total output of an economy, adjusted for inflation

Aggregate demand definition

total amount of planned spending on goods and services at any price in an economy

AD = C + I + G + (X - M)

What is underemployment?

when a worker is working fewer hours than they would like to work

this could be because of increased use of technology