Inflation | A-Level Economics Notes
These revision notes cover everything you need to know about Inflation for A-Level Economics. They're designed for students studying AQA A-Level Economics, Edexcel A-Level Economics, and Edexcel International A-Level Economics. Written by Jaisul Naik, UCL Economics graduate and A-Level Economics tutor since 2017.
How is inflation measured?
Inflation is measured using the CPI (Consumer Price Index)
It tracks the prices of a weighted basket of goods and services in the UK.
What is inflation?
A rise in the average price level.
What is deflation?
A fall in the average price level.
What is disinflation?
When the rate of inflation slows down (but remains positive) e.g. from 5% to 2%
The two causes of inflation
- Demand pull inflation (AD shifting right)
- Cost push inflation (SRAS shifting left)
The impact of high inflation
High inflation is damaging especially if average prices are rising at a faster rate than wages. This means that real wages are falling and living standards are worsening. There is also a risk of a wage-price spiral if workers start to ask for payrises.
The impact of deflation
Deflation is damaging as it causes people to form an expectation that prices will be lower in the future. This causes people to delay spending, leading to a fall in aggregate demand and therefore a further fall in price level, re-inforcing the cycle.
Summary questions
- How is inflation measured?
- What is inflation?
- What is deflation?
- What is disinflation?
- The two causes of inflation
- Why is the inflation target is 2%?
- What is the impact of high inflation?
- What is the impact of deflation?
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