top of page

Economics explained


Inflation and deflation

Measuring Inflation

Measuring Inflation

The secret to scoring awesome grades in economics is to have corresponding awesome notes.
A common pitfall for students is to lose themselves in a sea of notes: personal notes, teacher notes, online notes textbooks, etc... This happens when one has too many sources to revise from! Why not solve this problem by having one reliable source of notes? This is where we can help.
What makes TooLazyToStudy notes different?
Our notes:
  • are clear and concise and relevant
  • is set in an engaging template to facilitate memorisation
  • cover all the important topics in the O level, AS level and A level syllabus
  • are editable, feel free to make additions or to rephrase sentences in your own words!

    Looking for live explanations of these notes? Enrol now for FREE tuition!

Measurement of inflation

Inflation erodes the real value of money. In order to measure changes in the real value of money as a single figure, we need to group all goods and services into a single price index.

Consumer price index

A consumer price index is based on a chosen 'basket' of items which consumers purchase. A weighting is decided for each item according to the average spending on the item by consumers

Stages in constructing consumer price indices.

Selecting a base year:

This is usually a relatively standard year in which nothing unusual has occurred. It is given a value of 100. The base year is changed on a regular basis.

Carrying out a survey to find people’s spending patterns:

A sample of the population’s households are asked to keep a record of what they buy. The products purchased are placed into categories such as food and clothing and footwear.

Attaching weights to the different categories:

Weights are based on the proportion of total expenditure spent on the different categories. For instance, if on average households spend $500 of their total expenditure of $2,000 on food, the category will be given a weight of ¼ or 25%.

Finding out price changes:

Prices in a range of retail outlets and from a number of other sources such as gas companies and train companies are recorded.

Multiplying weights by price changes:

The total will give the change in the consumer price index but it can go much higher.

bottom of page