Understanding Inflation and Interest Rates

The video explains inflation as the increase in prices of goods and services over time. It describes how the UK's Office for National Statistics measures inflation using the Consumer Price Index (CPI), which tracks the cost of a basket of goods and services. The inflation rate is determined by comparing the CPI to its value a year ago. The Bank of England is responsible for maintaining low and stable inflation by setting the key interest rate, which influences other interest rates in the UK.

What is inflation a measure of?

• The stability of the economy

• The decrease in the value of money over time

• The fluctuation of stock market prices

• The increase in the prices of goods and services over time

How does the Office for National Statistics track inflation in the UK?

• By analyzing government spending

• By recording the cost of over 700 regularly purchased items

• By monitoring the stock market

• By surveying consumer satisfaction

What does the Consumer Price Index (CPI) represent?

• The average income of consumers

• The overall price level of a basket of goods and services

• The interest rate set by the Bank of England

• The total number of goods sold in a year

How is the rate of inflation calculated?

• By comparing the current CPI with that of a year ago

• By evaluating the unemployment rate

• By comparing the CPI with the stock market index

• By analyzing the GDP growth rate

What is the main tool used by the Bank of England to control inflation?

• Regulating the stock market

• Adjusting the key interest rate

• Controlling the money supply

• Setting the national budget