GWC N5 Economics Unit 2

Inflation is…

• The annualized percentage change in a general price index, usually the consumer price index, over time.
• Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

The rate of inflation is…

• The annualized percentage change in a general price index, usually the consumer price index, over time.
• The sustained increase in the general price level of goods and services in an economy over a period of time.

Disinflation is…

• a sustained fall in the average price level of the economy
• is a fall in the rate of inflation

Deflation is…

• is a fall in the rate of inflation
• a sustained fall in the average price level of the economy

A fall in the rate of inflation means…

• prices are still rising but just at a slower rate
• prices are falling
• inflation is falling

If you save money in the bank and you get a 5% interest rate but inflation is 2%, then the real interest rate is

• 0.05
• 0.02
• 0.03

Real prices account for inflation.

• true
• false

If your employee gives you a 1% pay rise but prices have risen by 2%, then your real pay has…

• increased by 1%
• increased by 2%
• fallen by 1%

Inflation erodes the purchasing power of money.

• true
• false

If you are on a fixed income and prices rise then your income will buy you...

• more goods and services each year
• less goods and services each year.
• the same amount of goods and services each year