3. Inflation: a sustained rise in the general level of prices of goods and service over a period of time. Erodes the purchasing power of consumers. Calculation using a price index. CPI PPI

5. measures changes in consumer prices. Headline rate of inflation. CPI: measures changes in consumer prices. Headline rate of inflation. CPI - interest rates on mortgage bonds. CPIX: CPI - interest rates on mortgage bonds. consists of a ‘basket’ of local, exported and imported goods. PPI: consists of a ‘basket’ of local, exported and imported goods.

6. No ‘average household’ Selection of goods/services not always representative of entire population. Weighting may not be accurate Random sampling may not represent population as a whole.

8. total demand for goods and services exceeds total supply. Demand-pull inflation: total demand for goods and services exceeds total supply.

9. due to increases in the costs of factors of production, such wages & raw materials. Cost-push inflation: due to increases in the costs of factors of production, such wages & raw materials.

10. persistent high inflation, a slowing economic growth rate and high unemployment. Stagflation: persistent high inflation, a slowing economic growth rate and high unemployment. Difficult for economic policy because: to lower inflation (↑ IR’s) → higher unemployment increasing employment → higher inflation

11. Hyperinflation: extravagant and unrestrained general price increases in excess of 50% per month. 650 million googol per cent 6,5 × 10 108 per cent or 65 followed by 107 zeros

12. government creates money to pay for its expenses currency loses its real value very quickly prices increase dramatically people quickly spend whatever they receive as the value decreases causes further acceleration in prices.

14. Cause by factors that ↑ C, I, G (X-M) Moneterists: Moneterists: ↑ in money supply main cause Keynsians: Keynsians: Inability of increase output to meet the increased demand

15. Caused by increase in… Imported raw materials and capital equipment (weak rand) price of oil Increased labour costs (wage increases > productivity increases Rise in interest rates Increase in taxes

16. Negative impact on economic growth. Discourages savings & investments Real value of money and savings decreases 5% interest - 8% inflation rate = real rate of interest of –3%. Balance of payments Prices of exported goods increase & imported goods decrease Loss of export competitiveness → unemployment.

17. Redistribution of income in a country Low-income groups more affected No assets that to rise faster than inflation poor wage bargaining power Causes further inflation Higher wage demands cause producers to increase their prices to maintain their profits…

20. Volatility of inflation not good for investment Higher than EU & USA therefore SA’s prices rise faster than trading partners ↓ competitiveness.

21. Dealing with demand-pull inflation Restrictive fiscal policy  ↑ taxes  ↓ gov spending Restrictive monetary policy  ↑ interest rates

22. Dealing with cost-push inflation compulsory measures to contain wage and price increases. polices aimed at increasing productivity – tax rebates/subsidies for workplace education & technology.

23.  Adopted in 2000  Inflation target set MPC (Gill and Pravin)  3% - 6%  SARB committed to achieve this  Policy instrument = repo rate  MPC meets every 3 months – public information  Accountable to parliament