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LV 2 Economics 2023 91222 Analyse Inflation Using Economic Concepts and Models 0140129063 - Vadim Fong

This document analyzes inflation using economic concepts and models. It discusses how an increase in wage costs would lead businesses to hire fewer workers, decreasing the demand for labor. It also explains how cost of living payments from the government would increase consumption and aggregate demand, leading to higher price levels and real GDP. Additionally, it outlines how a decrease in the money supply by the Reserve Bank of New Zealand would cause price levels and real GDP to fall. The document also discusses how inflation affects high-income and low-income households differently.

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Vadim Fong
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208 views3 pages

LV 2 Economics 2023 91222 Analyse Inflation Using Economic Concepts and Models 0140129063 - Vadim Fong

This document analyzes inflation using economic concepts and models. It discusses how an increase in wage costs would lead businesses to hire fewer workers, decreasing the demand for labor. It also explains how cost of living payments from the government would increase consumption and aggregate demand, leading to higher price levels and real GDP. Additionally, it outlines how a decrease in the money supply by the Reserve Bank of New Zealand would cause price levels and real GDP to fall. The document also discusses how inflation affects high-income and low-income households differently.

Uploaded by

Vadim Fong
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Lv 2 Economics 2023

91222
Analyse inflation using economic concepts and models
0140129063
Q.1

(a)

On Paper

(b)

The increase in wage cost would increase the cost of laubour for the business in new
zealand. Leading to and increase in in the over all cost of production. This mean that in order
to negate cost. The business will hire less people in odre to keep cost low and profits stable.
This means the deman of laobour will decrease from AD to AD2, in order to keep cost low.
But the supply of labour will increase, from AS to AS1. because more people will work
because of the higher wages.

On paper

(d)

With the cost of living payment injecting more money into the economy. Giving New
Zealander extra money. This will lead to C (consumption spending) to increase in the AD
equation (C + I + G (X - M)). With the extra money People have. Thay would spend more
money on goods and services. This combine with the inceres in government spending (G).
Due to giving out cost of living payments. This would mean AD would sincere to AD to AD1.

(e)

Thought wiith the Increase in causes AD to fall and AS to to rise. Causing Real GDP to fall.
In dont effect prices levels. As you can see on graph 1. The PL stay the same, and Y
decrease form Y to Y1. The impact of the cost of living payment. Causing AD to increase
from AD to AD1. due to both ( C ) and (G) the increasing dues to these. Cause Price levels
to risen from PL to PL1, and Real GDP. to increased from Y to Y1. Because the cost of
living payment increasing prices level. Thay have the highst impact on in flation rates.

Q.2

(a)

A high inflation make goods and services more expensive. This discauges households from
spending money due to the inceres in price levels, But encouraging savings due to saving
account growting much faster due to this. This can be seen as a leakages in the economy.
Taking mony out of the circular flow. This causes (V) (the amout of transactions that occar in
the economy) to decrease.
Lv 2 Economics 2023
91222
Analyse inflation using economic concepts and models
0140129063
(b)

M: Supply of Money

V: The amoust of transactions

P: Price levels

Q: Real GDP

(C)

The quantity theory of money formula (MV = PQ) states that the (Supply of Money) x (The
amoust of transactions) is equal to (Price levels) x (Real GDP). if the supply of money was to
decrease by 2%. The price levels of goods and services will decrease. To compinsant for a
decrease supply in money. This will also cause Real GDP to decrease as a byproduct.

(d)

If the Reserve Bank of New Zealand was the decease the supply of money by 2% while
keeping all other variables the same. This would lead to the price levels of goods and
services will decrease. To compinsant for a decrease supply in money. This will also cause
Real GDP to decrease as a byproduct. When the recession hit, and out has decreased by
3%, on top of the decease the supply of money by 2%. It will cause the Real GDP to
decrease even further. Because the drop in output will cause Aggragte supply to decrease.
Further decrease Real GDP on to of the decrease in Real GDP cused by the decease the
supply of money by 2%.

Q.3

(a)

Inflation is the inceres of all price levels across all goods and severis in a economy. The
entity resonsed for monitoring, controling and, regulating inflation in New Zealand. Is The
Reseve Bank of New Zealand.

(b)

As the Reseve Bank take action to control in inflation rate and try to decrease them. The
general population may work against the Reserve Bank. causing the deflation and inflation
rate to cancel each other out. Causing disinflation rather deflation in the New Zeland
economy.
Lv 2 Economics 2023
91222
Analyse inflation using economic concepts and models
0140129063
(C)

According to the resource above. The real wage of worker working minimum wage, has
stayed the same. Their real wage refleced the increasing inflation rates. As the inflation rate
increase, so did their wages. Non minimum wage worker however, their real wage have
decreased. The wage do not reflected the changes in the increasing inflation rates. Their
wages have not increased in order to keep up with inflation.

(d)

Low-income household usually work for minimum wage. Althought their waged are lower
than high-income household. With the incerese in the of the minimums wage indore to reflect
the increasing intereste rates. Their real wages have not changed, thus they can maintain
their current lifestyle.
High-income household usually dont work for minimum wage. Althought their waged are
higher than low-income household With the stagnation of their wage, which dont to reflect
the increasing intereste rates. Their real wages have decreased, thus they may be need to
change their lifestyle and cut expenses.
This will decrease economic inequality. Causing the gap between Low-income household
and High-income household to decrease. But instead of making Low-income household
richer, thay make High-income household poorer.

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