Retail price index Retail price index is used to measure inflation in an economy There is a base year set according to which price changes are monitored The prices of essential products are measured Causes of inflation Inflation is a persistent general increase in the overall prices of goods The 3 main causes of inflation are: Demand pull Cost push Money supply Cost push Inflation created by increase in costs Costs may increase due: Increase in raw materials cost Increase in wages Taxes imposed by the government Demand pull Inflation due to increase in demand Demand may increase due to: People may have more money Change in spending pattern Increase in the population Consequences of inflation Effects of inflation on the following people: Governments Businesses People on fixed income Borrowers and lenders
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Governments It is a primary objective of government to main price stability The government may allow an inflation rate of 3-4% for economic growth The government is hit hard if there is a inflation rate of 10%, because causes instability Businesses Businesses may benefit from an increase in price as it encourages investment Hyperinflation, which is 10%, causes instability and businesses are unable to sell their products People People on fixed income are hit very hard because their incomes do not increase with the increase in prices People earning money linked to the inflation rate are not affected at first, but if inflation prolongs they may also be badly affected Borrowers and lenders Person A lends 100 from person b to repay after 1 year. There is inflation rate of 10% the following year. Person A returns the money after 1 year. In real money value person a returns 90 Borrowers are badly affected by inflation Lenders benefit from the inflation Changing patterns and levels of employment People in developed countries mostly work in the tertiary sector People in the developing countries mostly work in the secondary sector More and more women are joining the labour force Causes of unemployment Frictional unemployment When employees are between jobs Cyclical unemployment When employees lose jobs in recession Structural unemployment Lack of demand for the product makes the employees redundant
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Consequences of unemployment Decrease in goods and services produced Frustration among the unemployed Burden on the government to pay Crime Gross Domestic Product (GDP) The value of goods and services produced in a country in a time period Methods to measure GDP Income method Expenditure method Output method Measures and indicators of comparative living standards GDP per head Human Development Index (HDI)
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