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Economics IGCSEPDF 99
118 pagesrevision 46932
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Effective Definitions
Inflation: A sustainedincrease in the
general price level in an economy over a
period of time, leading to a fall in the
purchasing power of money.
Deflation: A sustained decrease in the
general price level in an economy.
Consumer Price Index (CPI): The main
measure of inflation, calculated by tracking
the change in price of a 'basket' of typical
consumer goods and services over time.
Notes: Causes of Inflation
Demand-Pull Inflation:Caused by
an increase in Aggregate Demand
(AD) that outstrips the economy's
ability to supply the goods and
services. Too much money chasing
too few goods.
○ Causes: Lower interest rates,
increased consumer
confidence, higher
government spending.
Cost-Push Inflation: Caused by an
increase in firms' costs of
production, which are then passed
on to consumers as higher prices.
○ Causes: Rising wage rates,
higher price of imported raw
materials (e.g., oil), higher
indirect taxes.
Notes: Consequences of Inflation
and Deflation
Consequencesof HighInflation
The
● Fall in Real Income:
purchasingpower of people's money
falls, harming those on fixed
incomes (e.g., pensioners).
● Uncertainty: Firms and consumers
find it difficult to plan for the future,
which discourages investment.
● Trade: Exports become relatively
more expensive and imports
become relatively cheaper,
worsening the
Balance of
Payments
Consequences of Deflation
Reduced Consumption:
Consumerspostpone spending,
expecting prices to fall further in the
future.
● Falling Profit: Firms' revenues fall,
forcing them to cut production and
lay off workers, increasing
unemployment.
Increased Debt Burden: The real
value of debt rises, increasing the
burden on borrowers.
Unsolved Past Paper Questions
Question 8.1 (4 Marks)
Explain the term cost-push inflation
and give a cause of it.
Question 8.2 (6 Marks)
Analyse the main negative consequences of a high rate of
inflation
for an economy.
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