Theme 2: The UK economy – performance and policies
2.1 Measures of economic performance
2.1.1 Economic growth
a) Rates of change of real Gross Domestc Product (GDP) as a measure of economic growth
GDP – most commonly used measure of natonal income:
The total value of total output, expenditure and income in the economy
The total value of all goods and services produced in the UK
Index numbers
Index numbers – often used to track real GDP �hen measurin the level of natonal income
They are heavily dependent on where the base year is
Formula:
Index = (current year consumer spending/ base year consumer spending) x 100
Example 1:
In the table belo� the value of consumer spendin and real GDP is seen
1995 is the base year for the index of spendin and output
So the data for consumer spendin and real GDP has an index value of 100.0 in 1995
Consumer Index of consumer Real GDP Index of real GDP
spending spending
In Billion 1995 = 100 In billion 1995 = 100
1995 (Base) 505.1 100.0 831.1 100.0
1996 524.1 103.8 854.5 102.8
1997 543.5 107.6 882.5 106.2
1998 564.2 111.7 909.8 109.5
1999 590.3 116.9 935.8 112.6
2000 616.5 122.1 971.9 116.9
2001 635.6 125.8 994.3 119.6
2002 655.9 129.8 1011.9 121.8
2003 671.0 132.8 1034.6 124.5
An advanta e of index numbers is that it allo�s easy comparison and contrastn �ith different sets
of economic data
In the table above, it can be seen that consumer spendin has ro�n more quickly than real natonal
income over the period 1995-2003
The t�o sets of data are closely linked as consumpton accounts for more than 60% of GDP
The data indicates that consumer demand has been a key factor behind contnuing growth of the
economy (consumpton as a share of GDP has ro�n from 60% in 1995 to nearly 65% in 2003)
1
,Another Index number table:
Try and Pick out the hi hest and lo�est values to analyse
Year Nominal GDP Index of Populaton Nominal GDP Real GDP at
at market prices (GDP (millions) per head of 2013 prices
prices (£bn) deflator) 2013 the per head of
= 100 populaton the
populaton
1948 11.6 4.3 48.7 238.2 5621.4
1958 23.3 5.2 51.7 450.7 8666.53
1968 44.9 7.1 55.2 813.4 11452.7
1978 175.2 21.6 56.2 3117.4 14433.8
1988 511.7 48.2 56.9 8993.0 18615.5
1998 923.3 71.3 58.9 15675.7 21946.01
2008 1518.7 90.0 61.8 24574.4 27277.7
2013 1713.3 100.0 64.1 26728.5 26723.9
Index numbers of output:
The follo�in table contrasts the level of output of t�o key sectors in the economy, services
and manufacturin industry
The real values of spendin have been converted into an index number and then the
percenta e chan es in the f ures have been calculated
Manufacturin output Total service industries
2001 = 100 % chan e 2001 = 100 % chan e
1998 98.2 0.6 89.7 4.9
1999 98.9 0.7 92.8 3.5
2000 101.4 2.5 96.8 4.3
2001 100.0 -1.4 100.0 3.3
2002 96.9 -3.1 102.7 2.7
2003 97.3 0.4 105.3 2.5
Annual Growth Rate:
(Year in Queston – previous year/previous year) x 100
Year Real GDP Index Gro�th Rate
1998 892 0% 100.0
1999 917 2.8% 102.8
2000 951 3.7% 106.6
2001 972 2.2% 109.0
2002 987 1.5% 110.7
2003 1009 2.2% 113.1
2004 1044 3.5% 117.1
2
,b) Distncton between:
Real and nominal
Real – Adjusted for inflaton
Nominal – Face values
Total and per capita
Total GDP takes into account all of the goods and services produced in a country over a specifc
period of tme (quarterly and annually)
GDP per capita results from GDP divided by the size of the natonns overall populaton
Theoretcally, it’s the amount of money each individual ets in a partcular country and
provides a beter determinaton of livin standards compared to GDP alone
Value and volume
Value is the total monetary sum of somethin , for example, sales
Volume is the quantty of somethin
c) Other natonal income measures: Gross Natonal Product (GNP)/ Gross Natonal Income (GNI)
GNP = Gross Natonal Product
GDP + Net property income from abroad
GNI = Gross Natonal Income
GNP + Net Cross – Country Income
(e. . – remitances, dividend payments, interest payments), all usually measured over a set
period of tme, e. . One year
d) Comparison of rates of growth between countries and over tme
3
,e) Understanding of Purchasing Power Parites (PPPs) and the use of PPP-adjusted fgures in
internatonal comparisons
Purchasing Power Parity:
Exchan e rates bet�een countries are in equilibrium �hen their purchasin po�er is the same in all
countries
The exchan e rate bet�een t�o currencies are estmated to see �hat they �ould have to be
in order for the exchan e to be on par �ith the purchasin po�er of the t�o countries’
currencies
Adjusted GDP data so it is the same in all countries
Using a PPP rate for hypothetcal currency conversions, a iven amount of one currency thus has
the same purchasin po�er �hether used directly to purchase a market basket of oods or used to
convert at the PPP rate to the other currency and then purchase the market basket usin that
currency.
Advantages:
Fair and accurate comparisons bet�een countries of economic data as cost of living is different
across the �orld
PPP exchan e rates help to minimize misleading internatonal comparisons that can arise �ith the
use of market exchan e rates.
For example, t�o countries produce the same physical amounts of oods as each other in
each of t�o different years.
Since market exchan e rates fuctuate substantally, �hen the GDP of one country measured
in its o�n currency is converted to the other country's currency usin market exchan e
rates, one country mi ht be inferred to have hi her real GDP than the other country in one
year but lo�er in the other; both of these inferences �ould fail to refect the reality of their
relatve levels of producton.
But if one country's GDP is converted into the other country's currency usin PPP exchan e
rates instead of observed market exchan e rates, the false inference �ill not occur.
GDP per capita to PPP
41,800 dollars per head
38,600 dollars per head �hen you factor in PPP → the cost of livin
4
,f) The limitatons of using GDP to compare living standards between countries and over tme
Strengths Weaknesses
Easy to follow- easiest sin le measure of Standard of Livin Some income isnnt declared/hidden economy.
For example, unofcial �ork, unpaid �ork and ille al
actvites cannot be accounted for as it �ouldn’t be brou ht
to the atenton of the overnment �hich may
underestmate or overestmate GDP
Takes into account the overall wealth of a country – Doesnnt factor in purchasing power unless it is real GDP or
summary indicator of living standards in a country. PPP (this is much more accurate)
Quanttatve measure used to et a basic understandin of
other�ise qualitatve factors that contribute to hi her livin
standards, such as �ellbein , quality of life, and happiness.
Universal measure - used by all countries Doesnnt factor in exchange rate, could have a stron GDP
undermined by a �eak currency
Doesnnt take into account what money is spent on
T�o countries �ith a similar GDP per capita, but one spends
a lar e amount on the military, the other country is likely to
have a beter standard of livin as military spendin doesn’t
necessarily offer any benefts to the standard of livin for
most people
Doesnnt factor in inequality within a country. Countries
with a more equal distributon of income tend to have a
better standard of living.
Hi hly unequal countries in reality have lo�er standards of
livin than their GDP per capita �ould indicate, �hile hi hly
equal countries in reality have hi her standards of livin
than their GDP per capita �ould indicate. The reason for
this is diminishin returns - the more you have of a iven
resource (includin money) the less difference does it make
to your standard of livin to have a bit more. The same
resources accomplish more for our standard of livin if they
are distributed more evenly.
Doesnnt take into account non monetary terms.
For example, the chan in quality of items may sho� a
fallin price but GDP �ould measure this output lo�er due
to the lo�er price and erroneously su est that the value of
output has fallen.
Doesn’t take into account externalites such as polluton
Doesnnt take into account inflaton.
GDP is nominal and undermines GDP as a �ay of comparin
natonal income over tme. For example, f ures su est
that UK GDP doubled from 1990 (£558m) to 2003 (£1.1bn)
but this isn’t the case as £1.1bn �ould be �orth less in 2003
as it �as in 1993 since prices have risen in the meantme.
Doesnnt take into account changes in populaton.
GDP may rise or fall, dependin on the increase/decrease in
output relatve to the increase/decrease in populaton
It is not a reliable measure of happiness.
(belo�)
5
,g) Natonal happiness: UK natonal wellbeing
2018 UN happiness report ranked UK 19 th out of 156 natons.
Found six key factors �hich affect happiness:
Real GDP per capita
Healthy life expectancy
Havin someone to count on
Perceived freedom to make life choices
Freedom from corrupton
Generosity.
Data came from people’s evaluaton of their lives
Report found mental health as single factor affectn happiness in any country. Only 1/4 th of
mentally ill people et treatment for their conditon in advanced countries.
Conventonal economics su ests utlity is derived from consumpton of oods and services, and
thus households with higher incomes who can afford more things will be happier but research
doesn’t support this hypothesis.
Some studies sho� very weak links between happiness and income levels. Others have sho�n
hi her incomes do increase happiness but only to a certain level, after �hich risin incomes may
even have a ne atve impact on happiness
Factors affectn happiness from the research of Richard Layard (�orked extensively on ‘natonal
�ellbein ’ subject)
Family relatonships – havin to o throu h divorce, separaton or bereavement �ill reduce
happiness
Financial situaton – a fall in income is likely to reduce happiness
Work – not bein employed or job insecurity �ill reduce happiness
Community and friends – not feelin part of a community or lackin trust of people enerally
in your local area �ill reduce happiness
Health – chronic pain or mental illness si nifcantly reduces happiness, althou h �ith some
medical conditons it is possible to adapt
Personal freedom – lack of politcal freedom and presence of �ar reduces happiness
Personal values – lack of a reli ious faith or inability to look for comfort ‘�ithin’ reduces
happiness.
6
,h) The relatonship between real incomes and subjectve happiness
Politcians and economists have traditonally focused on economic growth as a primary objectve of
government economic policy.
Assumpton that a rise in GDP/GNP per capita must be a ood thin – but, for richer developed
natons, economic ro�th may have failed to make people happier
Decision makers are be innin to realise that more purchasin po�er is not the key to happiness
Are we happier if our real income rises?
The Easterlin paradox hi hli hts an apparent contradicton:
Despite extensive economic ro�th over last 50 years, people in richer countries don’t seem
to be any happier than they used to. In fact, a rise in income per person in US in the 1960s
co-existed �ith a reported fall in the avera e level of happiness
In internatonal comparisons, the avera e reported level of happiness bet�een countries
did not vary much despite very lar e differences in avera e incomes (assumin both
countries could at least meet basic needs).
Within an economy, the richer citiens are happier on avera e than the poorer ones.
Richard Layard concludes: happiness depends on relatve income and wealth
We only feel happier if �e feel beter off than the people �ith �hom �e compare ourselves.
Also �hen individuals et used to their beter material �ealth and adapt their expectatons up�ards.
The extra purchasin po�er becomes ‘habit’ and becomes the norm, so �e do not necessarily feel
happier.
And why do richer people feel happier than poorer people within an economy?
Is it their extra purchasin po�er in comparison �hich explains this?
True to some extent but other factors may also be part of the explanaton.
For example, it mi ht be the status that comes �ith more senior jobs or the freedom to be
able to control ho� you o about your job, �hich often occurs in more senior positons.
7
,2.1.2 Inflaton
a) Understanding of: inflaton/ deflaton/ disinflaton
Inflaton
Infaton is the sustained increase in the general price level of goods and services we buy leadin to
a fall in the purchasing power of money (value of money decreases)
Annual rate of infaton sho�s how much higher or lower prices are compared with the same
month a year earlier – indicates chan es to our cost of livin
8
,Deflaton
Defaton is a fall in the general price level
A negatve inflaton rate
Defaton means the value of money will increase
Often associated with periods of negatve or stagnant economic ro�th (Great Depression,
Japanese economy in 1990s, early 2000s)
Often used to express a declining economy and recession
Defaton is considered harmful to economy because:
People delay spending; hopin prices �ill be cheaper next year
Workers resist nominal wage cuts so real �a es rise causin real �a e unemployment.
Real interest rates become too high. Even interest rates of 0% cannot induce people to spend
creatn a liquidity trap.
9
, Increases the burden of debt
But, if defaton is caused by risin productvity, improved technolo y and lo�er costs, the defaton
may not be harmful but benefcial (dia ram)
Disinflaton
Describes �hen the inflaton rate has reduced marginally over the short term
Used to describe periods of slo�in infaton but is different from deflaton
Whilst infaton and defaton refer to the directon of prices, disinfaton refers to the rate of
change in the rate of inflaton
For example disinfaton is sho�n in the chan e in infaton rate from 3% one year to 2% the
next – so infaton is stll risin but just more slo�ly than before
10
2.1 Measures of economic performance
2.1.1 Economic growth
a) Rates of change of real Gross Domestc Product (GDP) as a measure of economic growth
GDP – most commonly used measure of natonal income:
The total value of total output, expenditure and income in the economy
The total value of all goods and services produced in the UK
Index numbers
Index numbers – often used to track real GDP �hen measurin the level of natonal income
They are heavily dependent on where the base year is
Formula:
Index = (current year consumer spending/ base year consumer spending) x 100
Example 1:
In the table belo� the value of consumer spendin and real GDP is seen
1995 is the base year for the index of spendin and output
So the data for consumer spendin and real GDP has an index value of 100.0 in 1995
Consumer Index of consumer Real GDP Index of real GDP
spending spending
In Billion 1995 = 100 In billion 1995 = 100
1995 (Base) 505.1 100.0 831.1 100.0
1996 524.1 103.8 854.5 102.8
1997 543.5 107.6 882.5 106.2
1998 564.2 111.7 909.8 109.5
1999 590.3 116.9 935.8 112.6
2000 616.5 122.1 971.9 116.9
2001 635.6 125.8 994.3 119.6
2002 655.9 129.8 1011.9 121.8
2003 671.0 132.8 1034.6 124.5
An advanta e of index numbers is that it allo�s easy comparison and contrastn �ith different sets
of economic data
In the table above, it can be seen that consumer spendin has ro�n more quickly than real natonal
income over the period 1995-2003
The t�o sets of data are closely linked as consumpton accounts for more than 60% of GDP
The data indicates that consumer demand has been a key factor behind contnuing growth of the
economy (consumpton as a share of GDP has ro�n from 60% in 1995 to nearly 65% in 2003)
1
,Another Index number table:
Try and Pick out the hi hest and lo�est values to analyse
Year Nominal GDP Index of Populaton Nominal GDP Real GDP at
at market prices (GDP (millions) per head of 2013 prices
prices (£bn) deflator) 2013 the per head of
= 100 populaton the
populaton
1948 11.6 4.3 48.7 238.2 5621.4
1958 23.3 5.2 51.7 450.7 8666.53
1968 44.9 7.1 55.2 813.4 11452.7
1978 175.2 21.6 56.2 3117.4 14433.8
1988 511.7 48.2 56.9 8993.0 18615.5
1998 923.3 71.3 58.9 15675.7 21946.01
2008 1518.7 90.0 61.8 24574.4 27277.7
2013 1713.3 100.0 64.1 26728.5 26723.9
Index numbers of output:
The follo�in table contrasts the level of output of t�o key sectors in the economy, services
and manufacturin industry
The real values of spendin have been converted into an index number and then the
percenta e chan es in the f ures have been calculated
Manufacturin output Total service industries
2001 = 100 % chan e 2001 = 100 % chan e
1998 98.2 0.6 89.7 4.9
1999 98.9 0.7 92.8 3.5
2000 101.4 2.5 96.8 4.3
2001 100.0 -1.4 100.0 3.3
2002 96.9 -3.1 102.7 2.7
2003 97.3 0.4 105.3 2.5
Annual Growth Rate:
(Year in Queston – previous year/previous year) x 100
Year Real GDP Index Gro�th Rate
1998 892 0% 100.0
1999 917 2.8% 102.8
2000 951 3.7% 106.6
2001 972 2.2% 109.0
2002 987 1.5% 110.7
2003 1009 2.2% 113.1
2004 1044 3.5% 117.1
2
,b) Distncton between:
Real and nominal
Real – Adjusted for inflaton
Nominal – Face values
Total and per capita
Total GDP takes into account all of the goods and services produced in a country over a specifc
period of tme (quarterly and annually)
GDP per capita results from GDP divided by the size of the natonns overall populaton
Theoretcally, it’s the amount of money each individual ets in a partcular country and
provides a beter determinaton of livin standards compared to GDP alone
Value and volume
Value is the total monetary sum of somethin , for example, sales
Volume is the quantty of somethin
c) Other natonal income measures: Gross Natonal Product (GNP)/ Gross Natonal Income (GNI)
GNP = Gross Natonal Product
GDP + Net property income from abroad
GNI = Gross Natonal Income
GNP + Net Cross – Country Income
(e. . – remitances, dividend payments, interest payments), all usually measured over a set
period of tme, e. . One year
d) Comparison of rates of growth between countries and over tme
3
,e) Understanding of Purchasing Power Parites (PPPs) and the use of PPP-adjusted fgures in
internatonal comparisons
Purchasing Power Parity:
Exchan e rates bet�een countries are in equilibrium �hen their purchasin po�er is the same in all
countries
The exchan e rate bet�een t�o currencies are estmated to see �hat they �ould have to be
in order for the exchan e to be on par �ith the purchasin po�er of the t�o countries’
currencies
Adjusted GDP data so it is the same in all countries
Using a PPP rate for hypothetcal currency conversions, a iven amount of one currency thus has
the same purchasin po�er �hether used directly to purchase a market basket of oods or used to
convert at the PPP rate to the other currency and then purchase the market basket usin that
currency.
Advantages:
Fair and accurate comparisons bet�een countries of economic data as cost of living is different
across the �orld
PPP exchan e rates help to minimize misleading internatonal comparisons that can arise �ith the
use of market exchan e rates.
For example, t�o countries produce the same physical amounts of oods as each other in
each of t�o different years.
Since market exchan e rates fuctuate substantally, �hen the GDP of one country measured
in its o�n currency is converted to the other country's currency usin market exchan e
rates, one country mi ht be inferred to have hi her real GDP than the other country in one
year but lo�er in the other; both of these inferences �ould fail to refect the reality of their
relatve levels of producton.
But if one country's GDP is converted into the other country's currency usin PPP exchan e
rates instead of observed market exchan e rates, the false inference �ill not occur.
GDP per capita to PPP
41,800 dollars per head
38,600 dollars per head �hen you factor in PPP → the cost of livin
4
,f) The limitatons of using GDP to compare living standards between countries and over tme
Strengths Weaknesses
Easy to follow- easiest sin le measure of Standard of Livin Some income isnnt declared/hidden economy.
For example, unofcial �ork, unpaid �ork and ille al
actvites cannot be accounted for as it �ouldn’t be brou ht
to the atenton of the overnment �hich may
underestmate or overestmate GDP
Takes into account the overall wealth of a country – Doesnnt factor in purchasing power unless it is real GDP or
summary indicator of living standards in a country. PPP (this is much more accurate)
Quanttatve measure used to et a basic understandin of
other�ise qualitatve factors that contribute to hi her livin
standards, such as �ellbein , quality of life, and happiness.
Universal measure - used by all countries Doesnnt factor in exchange rate, could have a stron GDP
undermined by a �eak currency
Doesnnt take into account what money is spent on
T�o countries �ith a similar GDP per capita, but one spends
a lar e amount on the military, the other country is likely to
have a beter standard of livin as military spendin doesn’t
necessarily offer any benefts to the standard of livin for
most people
Doesnnt factor in inequality within a country. Countries
with a more equal distributon of income tend to have a
better standard of living.
Hi hly unequal countries in reality have lo�er standards of
livin than their GDP per capita �ould indicate, �hile hi hly
equal countries in reality have hi her standards of livin
than their GDP per capita �ould indicate. The reason for
this is diminishin returns - the more you have of a iven
resource (includin money) the less difference does it make
to your standard of livin to have a bit more. The same
resources accomplish more for our standard of livin if they
are distributed more evenly.
Doesnnt take into account non monetary terms.
For example, the chan in quality of items may sho� a
fallin price but GDP �ould measure this output lo�er due
to the lo�er price and erroneously su est that the value of
output has fallen.
Doesn’t take into account externalites such as polluton
Doesnnt take into account inflaton.
GDP is nominal and undermines GDP as a �ay of comparin
natonal income over tme. For example, f ures su est
that UK GDP doubled from 1990 (£558m) to 2003 (£1.1bn)
but this isn’t the case as £1.1bn �ould be �orth less in 2003
as it �as in 1993 since prices have risen in the meantme.
Doesnnt take into account changes in populaton.
GDP may rise or fall, dependin on the increase/decrease in
output relatve to the increase/decrease in populaton
It is not a reliable measure of happiness.
(belo�)
5
,g) Natonal happiness: UK natonal wellbeing
2018 UN happiness report ranked UK 19 th out of 156 natons.
Found six key factors �hich affect happiness:
Real GDP per capita
Healthy life expectancy
Havin someone to count on
Perceived freedom to make life choices
Freedom from corrupton
Generosity.
Data came from people’s evaluaton of their lives
Report found mental health as single factor affectn happiness in any country. Only 1/4 th of
mentally ill people et treatment for their conditon in advanced countries.
Conventonal economics su ests utlity is derived from consumpton of oods and services, and
thus households with higher incomes who can afford more things will be happier but research
doesn’t support this hypothesis.
Some studies sho� very weak links between happiness and income levels. Others have sho�n
hi her incomes do increase happiness but only to a certain level, after �hich risin incomes may
even have a ne atve impact on happiness
Factors affectn happiness from the research of Richard Layard (�orked extensively on ‘natonal
�ellbein ’ subject)
Family relatonships – havin to o throu h divorce, separaton or bereavement �ill reduce
happiness
Financial situaton – a fall in income is likely to reduce happiness
Work – not bein employed or job insecurity �ill reduce happiness
Community and friends – not feelin part of a community or lackin trust of people enerally
in your local area �ill reduce happiness
Health – chronic pain or mental illness si nifcantly reduces happiness, althou h �ith some
medical conditons it is possible to adapt
Personal freedom – lack of politcal freedom and presence of �ar reduces happiness
Personal values – lack of a reli ious faith or inability to look for comfort ‘�ithin’ reduces
happiness.
6
,h) The relatonship between real incomes and subjectve happiness
Politcians and economists have traditonally focused on economic growth as a primary objectve of
government economic policy.
Assumpton that a rise in GDP/GNP per capita must be a ood thin – but, for richer developed
natons, economic ro�th may have failed to make people happier
Decision makers are be innin to realise that more purchasin po�er is not the key to happiness
Are we happier if our real income rises?
The Easterlin paradox hi hli hts an apparent contradicton:
Despite extensive economic ro�th over last 50 years, people in richer countries don’t seem
to be any happier than they used to. In fact, a rise in income per person in US in the 1960s
co-existed �ith a reported fall in the avera e level of happiness
In internatonal comparisons, the avera e reported level of happiness bet�een countries
did not vary much despite very lar e differences in avera e incomes (assumin both
countries could at least meet basic needs).
Within an economy, the richer citiens are happier on avera e than the poorer ones.
Richard Layard concludes: happiness depends on relatve income and wealth
We only feel happier if �e feel beter off than the people �ith �hom �e compare ourselves.
Also �hen individuals et used to their beter material �ealth and adapt their expectatons up�ards.
The extra purchasin po�er becomes ‘habit’ and becomes the norm, so �e do not necessarily feel
happier.
And why do richer people feel happier than poorer people within an economy?
Is it their extra purchasin po�er in comparison �hich explains this?
True to some extent but other factors may also be part of the explanaton.
For example, it mi ht be the status that comes �ith more senior jobs or the freedom to be
able to control ho� you o about your job, �hich often occurs in more senior positons.
7
,2.1.2 Inflaton
a) Understanding of: inflaton/ deflaton/ disinflaton
Inflaton
Infaton is the sustained increase in the general price level of goods and services we buy leadin to
a fall in the purchasing power of money (value of money decreases)
Annual rate of infaton sho�s how much higher or lower prices are compared with the same
month a year earlier – indicates chan es to our cost of livin
8
,Deflaton
Defaton is a fall in the general price level
A negatve inflaton rate
Defaton means the value of money will increase
Often associated with periods of negatve or stagnant economic ro�th (Great Depression,
Japanese economy in 1990s, early 2000s)
Often used to express a declining economy and recession
Defaton is considered harmful to economy because:
People delay spending; hopin prices �ill be cheaper next year
Workers resist nominal wage cuts so real �a es rise causin real �a e unemployment.
Real interest rates become too high. Even interest rates of 0% cannot induce people to spend
creatn a liquidity trap.
9
, Increases the burden of debt
But, if defaton is caused by risin productvity, improved technolo y and lo�er costs, the defaton
may not be harmful but benefcial (dia ram)
Disinflaton
Describes �hen the inflaton rate has reduced marginally over the short term
Used to describe periods of slo�in infaton but is different from deflaton
Whilst infaton and defaton refer to the directon of prices, disinfaton refers to the rate of
change in the rate of inflaton
For example disinfaton is sho�n in the chan e in infaton rate from 3% one year to 2% the
next – so infaton is stll risin but just more slo�ly than before
10
