Economics Edexcel A Level Paper 1 Definitions with 100% correct answers

Price Level The average of the prices of all goods and services within the economy. Other names for Price Level 'General Price Level' and 'Average Price Level' Inflation A sustained INCREASE in the price level. This means that prices for a range of goods and services are RISING, which means that the VALUE OF MONEY is FALLING in relation to the goods and services it is used to buy. Deflation A sustained DECREASE in the price level. This means that prices for a range of goods and services are FALLING, which means that the VALUE OF MONEY is RISING in relation to the goods and services it is used to buy. Disinflation A falling RATE OF INFLATION, so that the prices of goods and services are still RISING, but at a DECELERATING RATE. Hyperinflation A very high rate of inflation, meaning that money is losing its value very quickly. Whilst there is no fixed number, an annualised rate of inflation of 50% or greater would be regarded as this. Stagflation A situation where inflation is high, or rising quickly, yet the economy is nor growing in real terms, or is even in recession. Demand-pull inflation Inflation caused by a high-level of demand for goods and services which is widespread throughout the economy, meaning that the supply of goods and services is not sufficient to meet demand. This excess of demand causes prices of goods and services to rise. Cost-push inflation Inflation caused by an increase in costs of production experienced by producers across a wide range of goods and services. This widespread increase in costs means that goods and services cannot be supplied at previous prices, and cause the prices required for producers for goods and services to be pushed up. Anticipated inflation Inflation which is expected/predicted by economic agents. This type of inflation is less problematic as it can be planned for by consumers and producers. Unanticipated inflation Inflation which is unexpected/can't be predicted by economic agents. This type of inflation is more problematic as it can't be planned for by consumers and producers. Consumer Prices Index (CPI) A widely-used measure of inflation. It uses a 'basket' of around 650 goods and services which is meant to represent normal patterns of consumer spending. Measurement of the CPI Around 100,000 price measurements are recorded monthly in 141 areas of the UK to enable the creation of an index representative of average prices across the UK.