Download Chapter 32-33 Inflation for igcse File

 Inflation
prices.
is a general and persistent rise in
 Inflation
is measured using either the
Consumer Price Index (CPI) or the Retail
price index (RPI).
 An inflation rate of 2% is the target.
 Demand
pull inflation. Too much demand for
too few goods.
 Cost
push inflation. There is a rise in the
costs of production (oil, labour) which causes
suppliers to charge more money for their
product.
 Has the inflation in British rail prices been
demand pull or cost push?
A
third idea comes from the MONETARISTS.
They believe that the money supply causes
inflation. If governments and banks release
too much money – the consequence is
inflation
 Reduced
purchasing power. If there is
inflation of 10%, $100 today will only be
worth $90 in a year’s time.
 Reduced
value of savings
 Increased
business costs.
 Balance
of payments problems.
 If
there is high inflation in Britain and low
inflation in France, for example. British
goods will become more and more expensive
to produce and therefore more difficult to
sell in France. French goods, on the other
hand, will be cheaper. So inflation can lead
to balance of payments problems.
 Cost
of government spending rises. A lot of
government spending is index linked (what is
index linked?). So when the rate of inflation
is high – government spending has to
increase.