Inflation

Extract B (lines 6–7) states: ‘Some analysts hope that, before long, the currency will start to appreciate which could help Norway reduce inflation.’

With the help of a suitable diagram, explain how an appreciation of the krone could help Norway reduce inflation.

Extract F (lines 1–2) states: ‘While some see the benefits of the emergence of the BRICS+ economies, others are more worried by their rapid economic growth.’

Using the data in the extracts and your knowledge of economics, assess the view that the continued rapid economic growth of the BRICS+ economies is likely to be damaging to the macroeconomic performance of G7 nations, such as the UK.

Evaluate the view that a low rate of inflation is always beneficial for a country’s macroeconomic performance.

All other things being equal, which one of the following is most likely to be a consequence

Extract C (lines 4–5) states ‘Energy and food bills had risen dramatically due to shocks to the economy, such as labour shortages, a depreciation of the pound…’

With the help of a diagram, explain how a depreciation of the pound may cause inflation.

Assess whether an increase in the money supply is always damaging for an economy.

Extract F (lines 18–19) states: ‘Some say that the use of QE is a dangerous addiction and its overuse can lead to problems in the future.’ Using the data in the extracts and your knowledge of economics, assess the view that the continued use of quantitative easing (QE) is damaging for the UK economy.

The quantity theory of money can be explained using Irving Fisher’s equation of exchange, MV=PQ. Monetarist economists believe that the theory helps to explain inflation because some parts of the equation are normally stable.

Which parts of the equation do monetarist economists normally consider to be stable?

Extract E (lines 7–9) states: ‘It was hoped that policy measures, including a reduction in tariffs... would help to reduce inflation’.

With the help of a diagram, explain how a reduction in tariffs could help to reduce inflation.

Extract E (lines 15–17) states: ‘Policies were put in place to reduce the money supply and reduce government spending. The control of inflation became the main target of UK government macroeconomic policy.’

Using the data in the extracts and your knowledge of economics, evaluate the view that achieving a low and stable rate of inflation should be the main economic objective of governments.

Explain the main problems for an economy of having a large positive output gap.

In an economy, an index showing the change in the money supply multiplied by the velocity of circulation increases from 100 to 115.5. At the same time, the final output produced by the economy increases from 100 to 110.

According to Fisher’s equation of exchange, the price level will increase by

Evaluate the possible impact on the cost of living and the standard of living in the UK of a sustained rise in the value of the pound sterling against other currencies, such as the euro and the US dollar.

Table 2 shows the inflation rate and the rate of growth of the money supply for an economy between 2016 and 2019.

From the data in Table 2 it may be concluded that, all other things being equal, there was

Explain the main causes of a rise in inflation.

Evaluate the view that inflation is always preferable to deflation.

The table below contains selected data on a country’s macroeconomic performance over a 20 year period.

All other things being equal, which one of the following, A, B, C or D, can be inferred from the above data?

All other things being equal, if the velocity of circulation is constant, the quantity theory of money based on Fisher’s equation of exchange, MV=PQ, predicts that an x% increase in the money supply will always cause an x%

The table below shows indices for real GDP and consumer prices in an economy over six quarters.

During these six quarters the economy experienced

Turn over Section B

Extract E (lines 9–10) states ‘Improvements in productivity on the supply side of the economy could actually lead to more deflation.’

With the help of a diagram, explain how improvements in productivity could cause deflation.

Extract F (lines 19–20) states ‘What is not clear is what should be done if low inflation turns to bad deflation.’

Using the data in the extracts and your knowledge of economics, evaluate the view that monetary policy is the most effective way of tackling deflation in developed economies such as the UK and Japan.

The table below shows the Consumer Prices Index for a country over a number of

Which one of the following can be concluded from the table?