Explain The 2 Most Common Types Of Inflation

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Words: 631
Pages: 3

Economic Environment Dr Michael Brookes

Time allowed: 3 Hours
Total number of questions: 6
Instructions to candidates: Answer one question from Section A and any two questions from Section B.
Each question is worth a maximum of 25 marks. The total (out of 75) will be converted to a percentage after marking.

Materials provided: None Equipment permitted: Non-programmable Calculators Total number of pages: 3

No books, paper or electronic devices are permitted to be brought into the examination room other than those specified above.

Candidates are warned that illegible scripts will not be marked.

Each question carries 25 marks.

Section A – Seen Questions

Question 1

Explain the 2 most common causes of inflation. Evaluate the policy options available to governments as a means of controlling each type of inflation.

Clear explanation of cost push and demand pull – up to 5 marks.
Clear explanation of valid policies to address both – up to 10 marks.
Clear and accurate evaluation – up to 10 marks. [25 marks]

Question 2

Outline the meaning of demand-side policies and clearly explain how successful demand-side policies can lead to an expansion in economic output. Evaluate the effectiveness of demand-side policies as a means of managing the macroeconomy when compared directly with supply-side policies. Outline of demand-side polices – up to 5 marks.
Clear explanation of the linkage between demand-side policies and economic output – up to 10 marks.
Evaluation of effectiveness up to 10 marks. [25 marks]

Section B – Unseen Questions

Question 3

Assume that a market for a good is in equilibrium and that the supply and demand curves have their normal slopes. Using appropriate supply and demand diagrams, illustrate and discuss the effects of the following on the equilibrium price and quantity of the good. In each case apart from the event stated the ceteris paribus (other things constant) assumption holds.
(a) a rise in the price of raw materials S falls, Q falls and P rises.
(b) negative publicity concerning possible health problems related to consuming this good D falls, Q falls and P falls.
(c) a rise in the price of a complement D rises, Q rises and P rises.
(d) a rise in income when the good concerned is a necessity. D rises, Q rises and P rises.
(e) the introduction of a government subsidy paid to the producers of the good. S rises, Q rises and P falls. [25