Flashcards
INFLATION
Cards in this deck (24)
- 1Inflationa steady and persistent increase in the general level of prices. It's the rate at which money loses its ability to buy things.
- 2Measuring inflationPrice in any year/Price in base year x 100
- 3the consumer price indexmeasures the price changes of all goods and services typically consumed.
Compares a base year with the current cost. - 4Household budget enquiryResearch carried out five-yearly to capture changes in the overall pattern of consumer behaviour. Categories of spending are apportioned weights according to how much of the "shopping basket" they take up.
- 5CPI usesmeasures rate of inflation
- 6CPI useswe can compare our inflation rate internationally - its important our prices aren't racing head in comparison to other countries
- 7CPI usesan indicator of the health of an economy and a government's performance i.e. is price stability being maintained?
- 8CPI usesindexation of savings and investments.
When financial products eg pensions are index-linked they are kept in line with inflation. - 9CPI useswage negotiations employee groups will try to lever greater-than inflation pay rises for its members; or at least inflation level pay rises.
- 10CPI usesthe govt will use the rate of inflation to index-link tax bands so that employees do not pay more tax. And to justify social welfare rises so recipients can maintain their std of living.
- 11Precautions around CPIBeing an average measure it cannot capture the subtleties of individual spending e.g non-smokers/non-drinkers
- 12Precautions around CPIdoes not capture a cost of living index which considers tax changes income subbing between cheaper and dearer goods.
- 13Precautions around CPIthe "basket-of-goods" can out-date quickly not keeping in line with quickly-changing consumer trends and spending patterns.
- 14Precautions around CPIthat which measures the proportion of money spent on a category ie the weights may also prove out of sync with customer preferences.
- 15Precautions around CPIAs a "raw" measure of price the CPI has nothing to say about changes in quality.
- 16Precautions around CPIdoes not account for customers switching to cheaper choices.
- 17What factors cause inflation?demand-pull: too much money chasing too few goods
- 18What factors cause inflation?cost-push factors
companies will pass on increases in their costs of production - 19What factors cause inflation?imported inflation
if oil increases or the euro falls in value then sterling and dollar goods are dearer - 20What factors cause inflation?Govt factors - increase in duties or VAT will lead to inflation.
Tax reductions could lead to greater spending/greater demand thus sparking some inflation. - 21Remedies to limit inflationFiscal policy: increasing tax-credits helps employers' costs as it means employees are paying less tax and not pushing for higher wages
- 22Remedies to limit inflationgovt. could reduce spending so dampening demand although this will always face strong opposition from effected parties.
- 23Remedies to limit inflationMonetary policy
ECB will increase interest rates ( price of money) to encourage saving/reduce borrowing and apply the brakes to an overheating economy. - 24Partnership agreementsTrade union(ICTU) and employee groups (IBEC) and govt could cooperate to keep prices stable. Modest pay rises for modest productivity increases.
Information
- Description
- towards a better understanding of inflation
- Created by
- John O'Driscoll
- Views
- 185
- Tags
- Rating