Inflation

Question 1

2000 (inflation)

Answer 1

6% - spike in headline inflation due to the introduction of the GST

Question 2

2008-2009 (GFC) (inflation)

Answer 2

2.1% - fall in inflation due to lack of spending and economic slowdown

Question 3

2010 (inflation)

Answer 3

3.6% - Cyclone Yasi caused fruit and vegetable prices to increase due to supply chain distributions

Question 4

2020 (inflation)

Answer 4

-0.3% - deflation occurs due to drop in economic growth

Question 5

Effects of inflation on the economy (5)

Answer 5

1. Constraint on economic growth
2. Distorts saving and investment decisions
3. Worsens the distribution of income and wealth
4. Worsens CAD
5. Relationship with unemployment

Question 6

effects of low inflation and deflation (2)

Answer 6

1. low inflation enables price stability and investor confidence, promotes long term eco growth
2. deflation causes consumers and businesses to delay purchases as goods get cheaper, leads to falling consumption and demand-pull inflation. this is known as a deflation downward spiral.

Question 7

effect of monetary policy on inflation

Answer 7

contractionary fiscal policy is the most direct instrument to reduce inflation as it can put downward pressure on demand and thus prices.

Question 8

effect of micro policy on inflation

Answer 8

used to manage cost-push inflation, aims at increasing competition, in turn reducing inflation