INFLATION - DATA HANDLING SKILLS 2003 2004 2005 2006* Rate of inflation in China (%) 1.2 3.9 4.1 4.2 (i) Describe the trend of prices in China from 2003 to 2006.[2] Question 1: Overall, prices in China have increased [1] at an increasing rate. [1] (ii) Describe the change in inflation rate in China from 2003 to 2006. [1] Inflation rate in China from 2003 to 2006 has increased by 250%.[1] or Inflation rate in China in 2006 is 3.5 times that of 2003. [1]
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
INFLATION - DATA HANDLING SKILLS
2003 2004 2005 2006* Rate of inflation in China (%)
1.2 3.9 4.1 4.2
(i) Describe the trend of prices in China from 2003 to 2006.[2]
Question 1:
Overall, prices in China have increased [1] at an increasing rate. [1]
(ii) Describe the change in inflation rate in China from 2003 to 2006. [1]
Inflation rate in China from 2003 to 2006 has increased by 250%.[1]
or
Inflation rate in China in 2006 is 3.5 times that of 2003. [1]
Try this question on your own!
Question 2:
(i) Describe the trend of Consumer Price Index from 2002 to 2007. [1]
(ii) Describe the trend in price changes from 2002 to 2007. [1]
2014 JC2 H1/H2 Economics
INFLATION (1)
< CAUSES>
Ms Lim Lyn Na
MJC Econs Dept
Macro Problems and Causes
Recommended Reading: Sloman, 8th ed, p.446-456..
MJC lecture notes, H2 Unit 10A, H1 Unit 8A
ObjectiveS Of tOday’S Lecture
• Explain the sources of each type of inflation.
At the end of this lecture, can you answer this question?
Analyze the recent sources of inflation in Singapore. [10m]
• Define ‘Inflation’.
• Rank the significance of domestic and
international influences on inflation in SG.
•Using AD/AS analysis, explain and evaluate the 2
types of inflation (Demand Pull, Cost Push).
WHAT IS INFLATION?
Inflation is defined as a period of sustained and
inordinate increase in the general price level.
excessive for a reasonable period of time
rise in average price of ALL goods
CPIprevious year
x100%
(CPIcurrent year – CPIprevious year) Inflation rate (%) =
CPI measures the changes in cost of a basket of goods and services consumed by a typical household in an economy over a period of time.
H2 (10A) / H1 (8A) : p.2
CAUSES OF INFLATION
Demand Pull Inflation
Cost Push Inflation
√
A situation where AD is persistently higher than AS,
close to or at full employment generating sustained increase in GPL
2 IMPORTANT Conditions for DEMAND-PULL INFLATION
AD 2
E2
AD 3
E3
Yf Real output
GPL
AS
0
P3
P4
P2
AD 1
E1
P1
Y1
AD 4
E4
p.2 Demand Pull Inflation
AD is persistently increasing •when the economy is near or at full employment. •to create situation of excess demand at every general price level
H2 (10A) / H1 (8A) : p.2
DD-PULL INFLATION
A rise in any autonomous component
of AD will cause AD to increase sustained increases in AD
near or at Yf DD pull inflation
• Quantity Theory of Money
MV = PY where
M: money supply
V: velocity of circulating money
P: GPL
Y: real national output
Assuming V and Y are constant, increase in money supply lead to proportionate increase in GPL.