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Inflation · Part 2 of 3
15 exam-style questions with model answers, plus 23 quick multi-choice questions — every question on this part of the standard, grouped by the 5 pages of notes they come from.
Write a full answer before you reveal the model one. That comparison is where the learning happens.
State the formula for aggregate demand and explain which curve would shift, and in which direction, if New Zealand households significantly increased their saving.
A sharp rise in international shipping costs raises the cost of imported raw materials for New Zealand manufacturers.
Explain in detail the impact on New Zealand's price level and real GDP. Refer to the AS/AD model in your answer.
In the same year, the New Zealand government makes a large one-off payment to low-income households, and a drought sharply reduces agricultural output and raises food processing costs.
Compare and contrast the effect of these two events on New Zealand's price level and on real GDP. Refer to the AS/AD model in your answer, and give a reasoned judgement about which is likely to have the larger effect on the price level.
The Reserve Bank lowers the Official Cash Rate and retail interest rates fall.
Explain one reason why this could lead to demand-pull inflation.
New Zealand's major trading partners experience strong economic growth, and demand for New Zealand's exports rises sharply.
Explain in detail how this could cause demand-pull inflation in New Zealand. Refer to the AS/AD model in your answer.
Two events occur in the same year. The government increases spending on infrastructure by a large amount, and at the same time consumer confidence falls sharply after a series of job losses.
Compare and contrast the effect of these two events on New Zealand's price level and real GDP, and explain which is likely to have the greater effect. Refer to the AS/AD model in your answer.
New Zealand's minimum wage is increased significantly.
Explain the impact on the price level. Refer to the AS/AD model in your answer.
The New Zealand dollar depreciates sharply against the currencies of its major trading partners.
Explain in detail how this could cause cost-push inflation in New Zealand. Refer to the AS/AD model in your answer.
In one year, New Zealand experiences a sharp rise in wage costs across the economy, and in the same year world oil prices fall substantially.
Compare and contrast the impact of these two events on the price level, and explain which is likely to have the larger effect on New Zealand's inflation rate. Refer to the AS/AD model in your answer.
State the four components of the quantity theory of money and what each one measures.
Assume the velocity of circulation and real output remain constant.
Use the quantity theory of money to explain in detail the effect of a 3% decrease in the money supply on inflation.
Economists predict that New Zealand will enter a recession, with a significant decrease in real output over the next two years.
Use the quantity theory of money and the business cycle to explain how a recession may affect overall inflation. In your answer, include:
Name the four phases of the business cycle, and state which phase has the greatest inflationary pressure.
Explain in detail why the velocity of circulation is likely to decrease during a recession, and use the quantity theory of money to explain the effect on the price level.
An identical increase in government spending is announced in two different years: once when the economy is at the peak of the business cycle, and once when it is at the trough.
Compare and contrast the effect on the price level and on real GDP in each case, and explain which timing is better for New Zealand. Refer to the AS/AD model in your answer.