What is Inflation? Effects Inflation has on the Trafford Centre. How does The Bank of England control Inflation?

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Scott Goddard                                                                                                25/03/2010

Inflation

What is Inflation?

Inflation is a general and progressive increase in prices, usually measured over a period of a year; in inflation everything gets more valuable except money. There are two types of inflation- RPI (Retail Price Index) and CPI (Consumer Price Index), the only difference between both of these types of inflation, is that RPI is an average measure of change in the prices of goods and services- and includes house prices and the CPI is the same as the RPI- except it excludes house prices. The Bank of England Monetary Policy Committee tries to keep inflation steady at the Government’s 2% target, although this target isn’t always met,

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What Causes Inflation?

Several aspects cause inflation, for example, inflation can happen when governments print an excess of money to deal with a crisis. As a result, prices end up rising at an extremely high speed to keep up with the currency surplus. Another common cause of inflation is a rise in production costs, which leads to an increase in the price of the final product. For example, if raw materials increase in price, this leads to the cost of production increasing, this in turn leads to the company increasing prices to maintain profits.

How is Inflation calculated?

Inflation is ...

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Here's what a star student thought of this essay

This essay is structured well, with the clear subheadings making it clear what is being answered. I like the style used, and the language is sophisticated throughout. A few more diagrams would've been nice!

The level of analysis in this essay is sound. I like how they've acknowledged the difference between RPI and CPI. It would've been useful to note when RPI is used and when CPI is used. I would be careful when defining inflation, as it is very easy to sound ambiguous. For example "in inflation everything gets more valuable except money" suggests that everything is worth more, whereas it should state everything costs more. Purchasing power could've been discussed here. When looking at the causes of inflation, I would always advise drawing an aggregate demand and aggregate supply diagram. They would then be able to use the technical terms and show a shift in the curves representing demand-pull and cost-push inflation. I would've liked to have seen some awareness of a wage-price spiral when put into context with the Trafford centre: employees will want higher wages due to higher prices.

This essay responds to the question well, giving a good overview into inflation and its causes. I would've liked to have seen the effects explained a bit further, and an aggregate demand and supply diagram would have strengthened the analysis considerably.