Inflation
G3 Economics - syllabus K343, 2027
How inflation is measured with the CPI, its causes and consequences, and policies to control it.
- Inflation, deflation and the Consumer Prices Index
Inflation is a sustained rise in the general price level, measured by the change in the Consumer Prices Index.
- Causes of inflation: demand-pull and cost-push
Demand-pull inflation comes from total demand growing faster than output; cost-push comes from rising costs of production.
- Who gains and who loses from inflation
Inflation hurts savers, lenders and people on fixed incomes, can help borrowers, and makes a country's exports less competitive.
- Policies to control inflation
Contractionary fiscal and monetary policies cut demand-pull inflation; supply-side policies and a stronger currency ease cost-push inflation.
- Put it together: Inflation reaches 7%
Inflation has reached 7%, well above the 2% target. Part of it comes from a spending boom and part from higher import prices. Compare three responses.
What you will be able to do
I can define inflation and deflation.
Syllabus K343, 4.7.1. Definitions of inflation and deflation
Taught in Inflation, deflation and the Consumer Prices Index
I can explain how the Consumer Prices Index measures inflation.
Syllabus K343, 4.7.2. Measurement of inflation: measurement of inflation using the Consumer Prices Index (CPI)
Taught in Inflation, deflation and the Consumer Prices Index
I can explain demand-pull and cost-push inflation.
Syllabus K343, 4.7.3. Causes of inflation: demand-pull; cost-push
I can explain how inflation affects savers, lenders, borrowers, consumers, workers, firms and the economy.
Syllabus K343, 4.7.4. Consequences of inflation: how inflation affects savers, lenders and borrowers; consequences of inflation for consumers, workers, producers/firms and the economy
Taught in Who gains and who loses from inflation
I can describe the policies that control inflation and judge how well they work.
Syllabus K343, 4.7.5. Policies to control inflation: the range of policies available to control inflation and their effectiveness
Taught in Policies to control inflation