Transcript Inflation IER

When lotto began in 1987 the first division prize was worth $1,000,000. It could buy
five houses. Today a first division prize of $1,000,000 can only buy two. The value of
lotto prizes have gone down and the price of lotto tickets have gone up.
With reference to the information above, explain the difference
between a general price rise and an individual price rise.
General price rise: on average most prices are rising EG amount of
goods/services a lotto winner could buy with their 1st division winnings
has decreased.
Individual price rise: price of one good/service has increased. EG price
of lotto tickets has increased.
Achieved
General price rise or individual
price rise described
Merit
Difference explained EG:
I - GPR and IPR defined
E- difference explained
R- reference to price of lotto tickets
During March 2007 the adult minimum wage increased by almost ten percent
from $10.20 and hour to $11.25. An Employers Association spokesperson
said an increase in the adult minimum wage would cause a ripple affect
pushing up all wages.
Distinguish between cost push and demand pull inflation by explaining
the impact of the increase in the adult minimum wage on producers
and consumers.
CP: when producers costs of production increase (eg as wages increase
caused by an increase in the minimum wage) they increase their
prices to maintain profit margins (decrease in AS)
DP: when consumers incomes rise (eg was wages increase caused by an
increase in the minimum wage) consumption spending by households
increase ie demand increases (increase in AD)
Achieved
CP or DP defined or
described
Merit
Difference explained EG:
I - CP and DP defined
E- difference explained
R- reference to effect of min wage
increase on consumers or producers
a) Describe an impact of inflation on the value of New Zealand export receipts.
Give a possible reason for your impact.
Inflation in NZ pushes up the costs of NZ exports so exporters have to
raise prices so NZ exports become more expensive for overseas
consumers so the quantity falls so the value of export receipts falls
overall (value is price × quantity).
Achieved
Idea described
b) Describe an impact of inflation on the value of New Zealand import payments.
Give a possible reason for your impact.
Inflation in NZ pushes up the prices of domestically produced products.
If inflation rates are lower in other countries then imports become
relatively cheaper (ceteris paribus) so import quantities rise so the value
of import payments increase (price × quantity).
Achieved
Idea described
Price
Level
AD/AS Model
AS
Supply of G+S by all
producers in the
economy
Pe
Demand for G+S by
all sectors of the
economy
AD
Ye
RGDP
Price
Level
AD/AS Model
AS
Pe
AD
Ye
RGDP
c) Explain an impact of cost push inflation on growth. Refer to the AD/AS model.
CP is caused by most firms cost of production increasing. As a result AS
decreases (shift left) and real GDP/output decreases. CP inflation causes
a reduction in economic growth.
Achieved
Growth decreases idea
Merit
Explained:
I - CP is caused by can
increase in COP
E - AS decreases
R - refers to AS curve
Price
Level
AD/AS Model
AS
Pe
AD
Ye
RGDP
d) Explain an impact of demand pull inflation on growth. Refer to the AD/AS
model.
DP is caused by an increase in AD. As a result AD increases (shift right)
and real GDP/output increases. DP inflation causes an increase in
economic growth.
Achieved
Growth decreases idea
Merit
Explained:
I - DP is caused by an
increase in AD
E- AD shifts right
R- refers to AD curve