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

    involve two or more countries getting together to regulate trade. Advocates argue small groups of like-minded countries should club together to take trade-and-investment liberalisation deeper, wider and faster than would be possible in the much larger and more diverse WTO.

  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. The Balance of Payments.

    However large sustained surpluses are problematic like current account deficits. If a country is exporting high levels of goods and services than inevitably there is less available for domestic consumption, ultimately his may reduce the standard of living.

  2. Free essay

    Globalisation and changing career patterns

    It is readily recognised that the globalisation process has shaped work patterns in recent times. Many organisations now aspire to the fact work can be 'done by anyone, anywhere, at anytime' (Dick Brown, EDS CEO, 2002). Globalisation, and improved methods of communication have allowed this to happen.

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

    Corruption is notoriously difficult to prove, especially so when Somali law states there are no legal consequences or sanctions for officials who exploit their position for private gain30, hence officials do not care if they were caught. Resources, extracted from the rural areas through various legislative devices and controls, were never used for development for the common people.

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

    may be no better off from working than if they stay outside the employed labour force. With income tax there is a difference between the gross wage paid by the firm and the net wage received by the worker e.g.W1W3.

  1. Asses the impact of trade liberalisation on Australia.

    Such investment strategies have also enabled viable operations to be retained in Australia, this appears particularly to be the case for TCF and processed food firms. Joint ventures, strategic alliances and importing as well as exporting have commonly been employed to achieve competitiveness and maintain and expand employment.

  2. International economic relations

    Hume considered that the exchange rate equilibrates the trade balance of the country; this meaning that it grows, if the trade balance tends to the unfavorable one and in this way presses the imports, and vice-versa. Condillac Condillac applied his utility theory to international trade and demonstrated that what holds

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