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On Graph One, shift the AD or AS curve to illustrate demand-pull inflation.
Using Graph One, explain two causes of demand-pull inflation.
On Graph Two, shift the AD or AS curve to illustrate cost-push inflation.
Using Graph Two, explain two causes of cost-push inflation.
New Zealand’s inflation rate was 7.3% in the June 2022 quarter.
Discuss whether demand-pull inflation or cost-push inflation has had the bigger impact on the price level in New Zealand over the last two years.
Refer to Graphs One and Two in your answer.
Inflation in New Zealand is measured using the Consumers Price Index (CPI).
Define inflation.
Explain why the Consumers Price Index (CPI) is a weighted index.
Interest rates are forecast to rise in New Zealand during 2022. This is expected to lower inflation.
Explain one reason why higher interest rates could lead to lower inflation.
Compare and contrast the impact of inflation on the government’s revenue and expenditure, and the overall operating balance.
The 7.3% inflation rate experienced in New Zealand is expected to lead to some groups and occupations asking for higher wages.
Explain the impact of a 7.3% inflation rate on the purchasing power of a worker who receives a 4.3% increase in their nominal wages.
Explain one reason why high inflation rates may cause income distribution to become more unequal.
Compare and contrast the impact of a high inflation rate on the following groups in New Zealand society:
savers and borrowers
firms (business costs and business confidence).