4.6 Price stability

a) With the help of a diagram(s), explain the difference between cost-push inflation and demand-pull inflation and consider whether inflation is always a concern for govrnments.

a) With the help of an AD/AS diagram(s), explain one demand-side and one supply-side cause of deflation and consider which is likely to be more damaging to an economy. [8]

b) Assess whether the consequences of inflation in an economy are always negative. [12]

a) In 2021, year-on-year inflation in many economies increased to a level not experienced for fifty years. With the help of a diagram, explain what is meant by cost-push inflation and consider whether this type of inflation has affected your own economy since 2021. [8]

b) Assess whether the potential benefits of an increasing rate of inflation outweigh the potential costs for an economy. [12]

a) With the help of a diagram(s), explain one reason for an increase in aggregate demand and one reason for an increase in aggregate supply and consider whether an increase in aggregate demand will always lead to inflation. [8]

b) Assess whether the internal effects of inflation are more serious than the external effects of inflation for an economy. [12]

a) Explain causes of inflation. Consider whether depreciation of a country's currency that has less natural resources is more likely to face demand pull inflation. [8]

a) Explain the difference between cost-push inflation and demand-pull inflation. [8]

a) Explain what is meant by inflation and, using diagrams, show how it can arise both as a result of a shift in the aggregate demand curve and a shift in the aggregate supply curve. [8]

b) Discuss whether the domestic effects of inflation are more serious than the external effects for an economy. [12]

a) Explain how inflation is measured and why a rising rate of inflation may be of concern to consumers and producers. [8]

Explain what is meant by deflation and use aggregate demand and aggregate supply diagrams to explain how it might arise in an economy. [8]

b) Explain how aggregate demand is likely to be affected by an increase in the money supply and consider whether the impact of such an increase will be on employment or on the general price level. [12]

The annual rate of inflation in an economy increased sharply and unexpectedly.

a) Explain the likely consequences of such an increase for consumers and firms. [8]

a) The government raises taxes to provide a toll road bridge and streetlights in a country. Explain how an economist would classify each of these provisions. [8]

a) Explain three of the components of aggregate demand and consider the extent to which they may be increased without leading to inflation. [8]