Problem
• The inflation rate has increased in Australia and other countries during 2022. Explain in detail three causes of this recent rise in inflation.
• The table below shows a hypothetical country's Consumer Price Index (CPI). Calculate its approximate inflation rate in 2021 and 2022; show all your working.
|
Year
|
CPI
|
|
2020
|
100
|
|
2021
|
105
|
|
2022
|
121
|
• Using the Phillips Curve equation in your answer, explain how changes in the expected rate of inflation by the general population can result in changes in the future level of inflation. (4 marks)
• Explain two channels through which inflation pressures can be reduced by changes in each of: (i) fiscal policy and (ii) monetary policy. Explain two reasons why in practice it is hard to get the magnitude of the policy response exactly right to reduce inflationary pressures.
Task
A. The covid crisis affected confidence and the associated willingness of private households and businesses to spend. Using the usual AD graph and the concept of the multiplier, illustrate and explain in detail how this shock affected the level of GDP in the Australian economy.
B. Due to the global disruptions to supply during the covid crisis, some people have argued that Australia should impose a foreign tariff to build a domestic industry that can produce essential health items like facemasks. Analyse the benefits and costs of such a policy, and an alternative to protectionism.
C. One outcome of the covid shock was the large increase in people's ability and skill to undertake zoom meetings and use other online technologies. Define productivity, outline why it is important for Australia's living standards, and explain how this enhanced online capability could affect the future pace of productivity growth in Australia.
D. The increased use of online retail purchases after the covid crisis is reducing the amount of purchases and hence employment in physical retail shops. Should this job decline due to the adoption of online and other technologies be an issue for the government to address, and if so what policies should it use?