MYTUTOR SUBJECT ANSWERS

392 views

What is inflation?

Inflation is defined as "a sustained increase in the general price level." The accepted method of measuring inflation is by observation of change in the Consumer price index (CPI), which is derived from movements in price of a weighted basket of common consumer goods.  

Inflation is a useful measure when considering the stability of an economy. A country with low, stable inflation is usually considered to have a stable economy, increasing confidence of businesses, who may choose to invest into more expensive labour or machinery, increasing productivity and efficiency, which may lead to higher profits. 

Consumers also benefit from low inflation, if wages are increasing at a higher rate it may inspire them to spend more, lowering the saving ratio, and causing an injection into the circular flow of income.  

The governments set a target rate of 2% for inflation in 2011. Some feel that a lower rate or even deflation may be more benificial, as consumers who observe a lower rate of inflation than wage increase will feel wealthy, however rates that are too low can effect producer confidence in the market, as profits appear to be falling due to decrease in price. This may cause them to try sell else where, reducing the total number of sales in the market, and therefore also decreasing GDP. 

 

Lewis H. A Level Economics tutor, GCSE Economics tutor, GCSE Law tuto...

2 years ago

Answered by Lewis, an A Level Economics tutor with MyTutor


Still stuck? Get one-to-one help from a personally interviewed subject specialist

45 SUBJECT SPECIALISTS

£20 /hr

George H.

Degree: BA History (Bachelors) - Oxford, Lincoln College University

Subjects offered: Economics, Latin+ 4 more

Economics
Latin
History
.HAT.
-Personal Statements-
-Oxbridge Preparation-

“About me: Hello, my name is George and I'm an undergraduate reading History at Oxford. My aim is to be as approachable and patient as possible, explaining concepts with as much clarity as needed and encouraging you to have confidence ...”

£20 /hr

Anahita G.

Degree: Maths and Economics (Bachelors) - York University

Subjects offered: Economics, Science+ 3 more

Economics
Science
Maths
Chemistry
.TSA. Oxford.

“I am a maths and economics student at the University of York. I have always loved logical and analytical subjects, for example Maths and the Sciences. I also particularly enjoy economics as there are countless ways to analyse and conc...”

£20 /hr

Xenia K.

Degree: Law (Bachelors) - Durham University

Subjects offered: Economics, English Literature+ 2 more

Economics
English Literature
-Personal Statements-

“Hello :) My name is Xenia and I'm a law student at Durham University. Though I absolutely love my course I'll always have a soft spot in my heart for Economics and Literature and can't wait to share that love with you.  My teaching ph...”

About the author

£20 /hr

Lewis H.

Degree: Computer Science (Bachelors) - Newcastle University

Subjects offered: Economics, Psychology+ 2 more

Economics
Psychology
Philosophy and Ethics
Law

“Top tutor from the renowned Russell university group, ready to help you improve your grades.”

MyTutor guarantee

You may also like...

Posts by Lewis

How should put in my essays for 25 mark questions?

What is inflation?

Other A Level Economics questions

Why might the equilibrium market price of a good change?

What is the Phillips Curve?

How do you calculate Price Elasticity of Demand

Evaluate policies which a UK government could use to control the activities of oligopolists. (25 marks)

View A Level Economics tutors

Cookies:

We use cookies to improve our service. By continuing to use this website, we'll assume that you're OK with this. Dismiss

mtw:mercury1:status:ok