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EnglandEconomicsQuick questions
Component 2: Macroeconomics - Macroeconomic indicators
Quick questions on Inflation and its measurement - OCR A-Level Economics (H460)
4short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is costs of inflation?Show answer
It erodes the real value of savings and fixed incomes; creates menu costs (changing prices) and shoe-leather costs (managing cash); causes fiscal drag and arbitrary redistribution from lenders to borrowers; reduces international competitiveness if it exceeds rivals' inflation; and, if high and volatile, damages business confidence and investment.
What is costs of deflation?Show answer
Falling prices can be damaging: consumers delay purchases expecting lower prices (cutting AD), the real value of debt rises, and falling prices and wages can deepen a downturn (a deflationary spiral), as Japan experienced.
What is q1?Show answer
Distinguish between deflation and disinflation. [3 marks]
What is q2?Show answer
Explain one cost of high inflation to savers. [3 marks]
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