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Inflation - Coggle Diagram
Inflation
measures of inflation
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RPI (Retail price index)
RPI measures the same things CPI measures but also includes the cost of mortgage payments, rent and council tax. RPI is not calculated anymore but figures are still often compared to it
index numbers are used to measure inflation.To first calculate this, you need a base which is commonly a year which everything else is compared to.To calculat an inflation rate we use the formula (new value/base year) times 100
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causes of inflation
Cost-push inflation occurs when we experience rising prices due to higher costs of production and higher costs of raw materials. Cost-push inflation is determined by supply-side factors, such as higher wages and higher oil prices.
causes of cost-push inflation:-national minimum wage increases-trade union wage increases -increase in world commodity prices -external supply side shocks -rise in indirect taxes -rise in corporation tax -falling productivity
demand pull inflation is caused by increases in aggregate demand exceeding aggregate supply.Increase in AD leads to the general price level rising because supply cant keep up with the increase of demand
causes of demand-pull inflation: -exchange rate depreciation -rising demand spirits -excessive borrowing -global economy experiencing faster growth in incomes and buying a lot of goods from the uk, casuing uk exports and AD to rise quickly
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expectation problem
if inflation expectations rise, people tend to spend now to avoid the future higher prices. This can cause demand to rise causing prices to rise even further which furthers inflation.
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inflation is defined as a persistent increase in the general price level over a given period of a time
inflation is an indicator of the strength of the economy as unexpected inflation would mean goods amd services are becoming unaffordable as the purchasing power falls