4179993
Description
Flashcards by John O'Driscoll, updated more than 1 year ago
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Created by John O'Driscoll
over 8 years ago
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| Question | Answer |
| Inflation | a steady and persistent increase in the general level of prices. It's the rate at which money loses its ability to buy things. |
| Measuring inflation | Price in any year/Price in base year x 100 |
| the consumer price index | measures the price changes of all goods and services typically consumed. Compares a base year with the current cost. |
| Household budget enquiry | Research 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. |
| CPI uses | measures rate of inflation |
| CPI uses | we can compare our inflation rate internationally - its important our prices aren't racing head in comparison to other countries |
| CPI uses | an indicator of the health of an economy and a government's performance i.e. is price stability being maintained? |
| CPI uses | indexation of savings and investments. When financial products eg pensions are index-linked they are kept in line with inflation. |
| CPI uses | wage negotiations employee groups will try to lever greater-than inflation pay rises for its members; or at least inflation level pay rises. |
| CPI uses | the 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. |
| Precautions around CPI | Being an average measure it cannot capture the subtleties of individual spending e.g non-smokers/non-drinkers |
| Precautions around CPI | does not capture a cost of living index which considers tax changes income subbing between cheaper and dearer goods. |
| Precautions around CPI | the "basket-of-goods" can out-date quickly not keeping in line with quickly-changing consumer trends and spending patterns. |
| Precautions around CPI | that which measures the proportion of money spent on a category ie the weights may also prove out of sync with customer preferences. |
| Precautions around CPI | As a "raw" measure of price the CPI has nothing to say about changes in quality. |
| Precautions around CPI | does not account for customers switching to cheaper choices. |
| What factors cause inflation? | demand-pull: too much money chasing too few goods |
| What factors cause inflation? | cost-push factors companies will pass on increases in their costs of production |
| What factors cause inflation? | imported inflation if oil increases or the euro falls in value then sterling and dollar goods are dearer |
| What 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. |
| Remedies to limit inflation | Fiscal policy: increasing tax-credits helps employers' costs as it means employees are paying less tax and not pushing for higher wages |
| Remedies to limit inflation | govt. could reduce spending so dampening demand although this will always face strong opposition from effected parties. |
| Remedies to limit inflation | Monetary policy ECB will increase interest rates ( price of money) to encourage saving/reduce borrowing and apply the brakes to an overheating economy. |
| Partnership agreements | Trade union(ICTU) and employee groups (IBEC) and govt could cooperate to keep prices stable. Modest pay rises for modest productivity increases. |
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