• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Infation HSC Notes

Extracts from this document...

Introduction

Consumer price Index (CPI): summarises the movement in the prices of a basket of goods and services according to their significance for the average Australian household Used to measure inflation in Australia. (NOTE: does not include ALL goods and services but covers a wide selection, hence good indication of overall movement in priced on consumer goods which reflects the changes in the cost of living). Inflation: sustained increase in the GENERAL level of prices in an economy Headline Inflation: the rate of inflation calculated by the CPI can be misleading as it included prices which are volatile or one-off factors. Underlying Inflation (core inflation): removes the effects of on-off or volatile price movements, hence it tends to be less variable than headline inflation. Trimmed Mean: inflation determined by calculating the average inflation rate after excluding the 15% of items with the largest price increases and the 15% of items with the smallest price increases (or largest falls) from CPI Weighted median: is inflation calculated by comparing the inflation rate of every item in the CPI, and identifying the middle observation. (Half of items will be greater than this weighted median, while the other half will be less than it). Structural Change: refers to the process by which the pattern of production in an economy is altered over time, and certain products, processes of production, and even industries disappear while others emerge. ...read more.

Middle

Inflationary Expectations * If individuals in an economy except higher inflation in the future, they will act in a way to increase the inflation. This can be done I two ways: o Prices of g's/s's expected to increase ? consumers purchase goods before price increases. The Increase in consumption ? higher demand-pull inflation. Also if firms expect that demand for their product will increase ? raise prices to maximise ? ?increase in o Employees expect inflation to increase ? during wage negations they will tend to ask for a higher wage rise to keep their purchasing power of their wage. Higher wages increases ? increase in cost pull inflation * Inflationary expectation area problem to policy makers. Individuals expect higher inflation ? bring act to bring higher inflation. High inflationary expectation ? higher inflation ? economic contraction. Imported Inflation * Major cause of this is raising import prices. This will increase the price of imported goods hence increasing the inflation rate. * A depreciation of the Australia dollar will also increase the domestic price of imports ==>� * If imports face competition from locally made products ? importers reduce ? margins ? not pass on to consumers the full effect of depreciation or overseas price rise Other Causes * Government polices ? ...read more.

Conclusion

recue demand-pull inflation. RBA aims to increase I.R. before inflation reaches top of target band. * The use of monetary policy by the RBA has also meant that inflationary expectations have been lowered and thus further reducing the inflation rate. Fiscal Policy * Fiscal policy plays a more supporting role to manage the inflation rate. By increasing revenue and decreasing spending the government can in effect reduce demand pressures in the economy ? reducing demand-pull inflation. * E.g. 2008-09 budget government increased the size of its forecast budget surplus ? minimising inflationary pressures by reducing public demand, * Fiscal policy aimed to reduce the inflation rate may also reduce the need for higher interest rates. Microeconomic Reform Policies * Reduced protection has lowered the prices of imports. Also it has increased the competition faced by dom. producers from both foreign completion and new entrants to domestic markets ? more difficult for domestic producers to increase prices * Reforms to labour market ? ensure that wages increases are only linked to productivity improvement. If productivity rises ? economy able to afford REAL wage increases without any inflationary pressures. * Deregulated labour market ? strong demand for skilled workers ? higher wages in industries experiencing a shortage of skilled workers. * Government: greater spending on economic infrastructure (roads, railways and port) necessary to reduce capacity constraints faced by businesses which would increase production costs and contribute to inflation. ?? ?? ?? ?? Inflation Basil Razi ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level UK, European & Global Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level UK, European & Global Economics essays

  1. Why has GDP growth been so slow in Somalia?

    Civil war changes the capital stock in two ways. First, internal con?ict reduces the existing stock of capital. Residential structures, roads, bridges, ports, and factories are targeted and destroyed by competing militaries in wartime. During the first wave of war between clan militias fighting for control over the capital in the wake of President Siad Barre's fall, most of

  2. Unemployment HSC Notes

    Impacts of unemployment ECONOMIC COSTS * Opportunity costs: o Unemployment means ? economy's resources are underutilised o Hence economy is operating below its production possibility frontier o ? Total output < potential total output o Lower total output ? lower household incomes ?

  1. In what ways is the government attempting to increase the willingness to wor

    Cuts in income tax have encouraged more people to find a job, as, if people in low paid jobs had to pay high income tax it may mean that they end up earning less money than they would collecting benefits.

  2. Free essay

    Globalisation and changing career patterns

    I myself am in danger here. I am currently the Disaster Recovery service delivery manager for a financial client, but have worked from home for the past 2 years, attending site(s) as and when required. An article in The Observer on the 3rd December 2006 reported that EDS intended to

  1. Chinese Economic Reform

    about also as a result of an attempt by CCP leaders to demonstrate, in a more practical and thus less obviously ideological manner than Mao had done, their moral force. This is not to say that the idea of economic reform was embraced enthusiastically by all members of the leadership of the Chinese Communist Party in 1978.

  2. Where does the World Trade Organisation fit in the overall scheme of international public ...

    growth (a subject to be developed in the next section), and, arguably, overestimates the positive effect of dirigiste industrial policies in East Asia and elsewhere. His idea for a development and social safeguard clause in the WTO is open-ended (to put it mildly)

  1. Generalized role of a purchase manager

    > Maintains two open purchase order files. One to relate to purchases of materials that are ordered repetitively for production work, the other to purchase orders made against requisitions. The files are to be organized so that they enable a system of follow-up to expedite and can be reviewed by

  2. Outline the debate about whether 'export-led growth' is better or worse than 'import substituting ...

    The level of development goes up as there is less emphasis on agriculture; the poorest countries in Table 1 have a markedly larger agricultural sector than the 'upper-middle income' countries of Malaysia and Costa Rica, where there has been a transition to industry and service provision.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work