WEILAI Online Academic assistant
WEILAI Online Academic assistant
Back to 课程

Economics_A-level_Edexcel

0% Complete
0/0 Steps
  1. 1-1-nature-of-economics
    6 主题
  2. 1-2-how-markets-work
    10 主题
  3. 1-3-market-failure
    4 主题
  4. 1-4-government-intervention
    2 主题
  5. 2-1-measures-of-economic-performance
    4 主题
  6. 2-2-aggregate-demand-ad
    5 主题
  7. 2-3-aggregate-supply-as
    3 主题
  8. 2-4-national-income
    4 主题
  9. 2-5-economic-growth
    4 主题
  10. 2-6-macroeconomic-objectives-policies
    4 主题
  11. 3-1-business-growth
    3 主题
  12. 3-2-business-objectives
    1 主题
  13. 3-3-revenues-costs-and-profits
    4 主题
  14. 3-4-market-structures
    7 主题
  15. 3-5-labour-market
    3 主题
  16. 3-6-government-intervention
    2 主题
  17. 4-1-international-economics
    9 主题
  18. 4-2-poverty-inequality
    2 主题
  19. 4-3-emerging-developing-economies
    3 主题
  20. 4-4-the-financial-sector
    3 主题
  21. 4-5-role-of-the-state-in-the-macroeconomy
    4 主题
  22. 5-1-the-exam-papers
    3 主题
  23. 5-2-economics-a-level-skills
    1 主题
  24. 5-3-structuring-your-responses
    9 主题
课 Progress
0% Complete

Inflation, Deflation & Disinflation

  • Inflation is the sustained increase in the average price level of goods/services in an economy

    • The average price level is measured by checking the prices of a ‘basket’ of goods/services that an average household will purchase each month

    • This basket of goods is turned into an index and it is called the consumer price index (CPI)

    • The UK has an inflation target of CPI at 2% per annum

      • Low inflation is better than no inflation, as it is a sign of economic growth

  • Deflation occurs when there is a fall in the average price level of goods/services in an economy

    • Deflation only occurs when the percentage change in prices falls below zero %

  • Disinflation occurs when the average price level is still rising, but at a lower rate than before

    • These figures demonstrate disinflation:  Y1 = 5% Y2 = 4% Y3 = 2%

      • Inflation is increasing but at a decreasing rate

Worked Example

How would you characterise the fall in the CPI from 2018 to 2021? Explain your answer

2-1-2-inflation---worked-example_edexcel-al-economics

Step 1: Study the time period and decide if you are witnessing inflation, disinflation or deflation

Disinflation

Step 2: Explain your answer

According to the CPI data, prices are still rising but at a decreasing rate. For example, in 2018, prices were rising at around 3%. In 2019, this increase fell to roughly 1.8%. In 2021, they were still rising but by a much lower rate, around 0.5%

Calculating Inflation Using the Consumer Price Index (CPI)

  • Inflation is the sustained increase in the average price level of goods/services in an economy

  • The inflation rate is the change in average price levels in a given time period

    • The inflation rate is calculated using an index with 100 as the base year

    • If the index is 100 in year 1 and 107 in year 2, then the inflation rate is 7%

  • The UK uses two inflation indices – the consumer price index (CPI) and the retail price index (RPI)

    • Each is calculated slightly differently

The Consumer Price Index (CPI)

  • A ‘household basket’ of 700 goods/services that an average family would purchase is compiled on an annual basis

    •  A household expenditure survey is conducted to determine what goes into the basket

    • Each year, some goods/services exit the basket and new ones are added

  • Goods/services in the basket are weighted based on the proportion of household spending

    • E.g. More money is spent on food than shoes, so shoes have a lower weight in the basket

  • Each month, prices for these goods/services are gathered from 150 locations across the UK

    • These prices are averaged out

  • The price x the weighting determines the final value of the good/service in the basket

    • These final values are added together to determine the price of the ‘basket’

  • begin mathsize 14px style CPI space equals fraction numerator Cost space of space basket space in space year space straight X over denominator Cost space of space basket space in space base space year end fraction space straight x space 100 end style

  • The percentage difference in CPI between the two years is the inflation rate for the period

Worked Example

Using the information in the table, calculate the inflation rate for 2021 if the price of the basket in the base year (2019) was $400

Good

Price 2020

Price 2021

Weight

Basket 2020

(Price x weight)

Basket 2021

(Price x weight)

Housing, water, electricity, gas

950

1200

34%

323.00

408.00

Transport

250

325

11%

27.50

35.75

Food

500

620

9%

45.00

55.80

Recreation and culture

300

340

10%

30.00

34.00

Clothing and footwear

190

210

5%

9.50

10.50

 

 

 

 

$435.00

$544.05

Step 1: Calculate the CPI for 2020

<img alt=”CPI space equals fraction numerator Cost space of space basket space in space 2020 over denominator Cost space of space basket space in space base space year end fraction space straight x space 100 space space space space space space space equals space 435 over 400 space straight x space 100 space space space space space space space equals space 108.75
” data-mathml='<math style=”font-family:Arial” ><semantics><mrow><mi mathsize=”14px”>CPI</mi><mo mathsize=”14px”> </mo><mo mathsize=”14px”>=</mo><mfrac><mrow><mi mathsize=”14px”>Cost</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>of</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>basket</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>in</mi><mo mathsize=”14px”> </mo><mn mathsize=”14px”>2020</mn></mrow><mrow><mi mathsize=”14px”>Cost</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>of</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>basket</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>in</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>base</mi><mo mathsize=”14px”> </mo><mi mathsize=”14px”>year</mi></mrow></mfrac><mo mathsize=”14px”> </mo><mi mathvariant=”normal” mathsize=”14px”>x</mi><mo mathsize=”14px”> </mo><mn mathsize=”14px”>100</mn><mspace linebreak=”newline”/><mspace linebreak=”newline”/><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”>=</mo><mo mathsize=”14px”> </mo><mfrac><mn mathsize=”14px”>435</mn><mn mathsize=”14px”>400</mn></mfrac><mo mathsize=”14px”> </mo><mi mathvariant=”normal” mathsize=”14px”>x</mi><mo mathsize=”14px”> </mo><mn mathsize=”14px”>100</mn><mspace linebreak=”newline”/><mspace linebreak=”newline”/><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”> </mo><mo mathsize=”14px”>=</mo><mo mathsize=”14px”> </mo><mn mathsize=”14px”>108</mn><mo mathsize=”14px”>.</mo><mn mathsize=”14px”>75</mn><mspace linebreak=”newline”/></mrow><annotation encoding=”application/vnd.wiris.mtweb-params+json”>{“language”:”en”,”fontFamily”:”Times New Roman”,”fontSize”:”18″}</annotation></semantics></math>’ height=”172″ role=”math” src=”data:image/svg+xml;charset=utf8,%3Csvg%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F2000%2Fsvg%22%20xmlns%3Awrs%3D%22http%3A%2F%2Fwww.wiris.com%2Fxml%2Fmathml-extension%22%20height%3D%22172%22%20width%3D%22261%22%20wrs%3Abaseline%3D%2285%22%3E%3C!–MathML%3A%20%3Cmath%20xmlns%3D%22http%3A%2F%2Fwww.w3.org%2F1998%2FMath%2FMathML%22%20style%3D%22font-family%3AArial%22%3E%3Cmi%20mathsize%3D%2214px%22%3ECPI%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmo%20mathsize%3D%2214px%22%3E%3D%3C%2Fmo%3E%3Cmfrac%3E%3Cmrow%3E%3Cmi%20mathsize%3D%2214px%22%3ECost%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmi%20mathsize%3D%2214px%22%3Eof%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmi%20mathsize%3D%2214px%22%3Ebasket%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmi%20mathsize%3D%2214px%22%3Ein%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmn%20mathsize%3D%2214px%22%3E2020%3C%2Fmn%3E%3C%2Fmrow%3E%3Cmrow%3E%3Cmi%20mathsize%3D%2214px%22%3ECost%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%23xA0%3B%3C%2Fmo%3E%3Cmi%20mathsize%3D%2214px%22%3Eof%3C%2Fmi%3E%3Cmo%20mathsize%3D%2214px%22%3E%26%2

Responses

您的邮箱地址不会被公开。 必填项已用 * 标注