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Inflation Notes

This is a sample of our (approximately) 5 page long Inflation notes, which we sell as part of the Macroeconomics Notes collection, a A package written at Wallington High School For Girls in 2011 that contains (approximately) 18 pages of notes across 5 different documents.

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Inflation Revision

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MEASURE OF ECONOMIC PERFORMANCE ii.) INFLATION A sustained increase in the general price level (prices of products across the economy) in a given time period. OR A sustained fall in the purchasing power of money. DISINFLATION - inflation continues at a slower rate DEFLATION - sustained decrease in the general price level in a given time period

Calculating Inflation:

1. Consumer Price Index (CPI) - calculated since 1995; took over as the main measure in 2003
- CPI + 2% = Bank of England inflation Target

2. Retail Price Index (RPI) - calculated since 1947; still used for the purpose of indexation of pensions, benefits and tax allowances Index Construction

• Both indices represent the changes in prices across a wide range of consumer purchases.

• They are like the contents of two enormous shopping baskets.

• Each month 120,000 prices for over 650 items from 150 UK locations are collected to update the indices.

A weight is given to each item in the baskets to reflect its importance in the 'typical household budget'

Inflation Rate: A measure of the percentage change in the index compared to the same month one year previously. OR A measure of the annual percentage change in the level of consumer prices.

Curves Showing Inflation:

Aggregate Demand (AD) + Aggregate Supply (AS) Curves The Phillips Curve - a combination curve of inflation + unemployment

Causes of Inflation:


1. DEMAND PULL = increases in AD when the economy is operating at or close to full capacity

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