In this topic you will learn to:
Examine economic issues
- analyse the effects of inflation on an economy
Apply economic skills
- assess the key problems and issues facing the Australian economy.
You will learn about:
Inflation
– cost inflation
– imported inflation
– inflationary expectations
- measurement – headline and underlying
- trends
- causes
– cost inflation
– imported inflation
– inflationary expectations
- positive and negative effects
Writing Target
Assess the effectiveness of monetary policy in controlling inflation.
Your answer will be assessed on how well you:
- demonstrate knowledge and understanding relevant to the question.
- apply relevant economic information, terms, concepts, relationships and theory.
- present a sustained, logical and cohesive response.
Work through the material below and then complete a scaffold for this question using ALARM. Download the Inflation_MP_Draft Response Scaffold - ALARM before you start.
| inflation_mp_draft_response_scaffold_-_alarm.pdf |
From The Economist: How rising inflation could disrupt the world’s economic policies
The debate about whether high inflation will emerge out of the pandemic is becoming more pressing. In January underlying prices in the euro zone rose at their fastest pace for five years. In America some economists fear that President Joe Biden’s planned $1.9trn stimulus, which includes $1,400 cheques for most Americans, may overheat the economy once vaccines allow service industries to reopen fully. Emerging bottlenecks threaten to raise the price of goods. Space on container ships costs 180% more than a year ago and a shortage of semiconductors caused by this year’s boom in demand for tech equipment is disrupting the production of cars, computers and smartphones.
Headline statistics on price rises will soon contribute to the sense that an inflationary dawn is breaking. They will go up automatically as the collapse in commodities prices early in the pandemic falls out of comparisons with a year earlier, and the recent rise in the oil price begins to bite—on February 8th Brent crude rose above $60 a barrel for the first time in more than a year. In Germany the reversal of a temporary cut in vat has already helped year-on-year inflation rise from -0.7% to 1.6% in a month.
For most of the past decade the world economy’s problem, judged by central banks’ targets, has been too little inflation, not too much. As a result it is easy to view the coming acceleration in prices as welcome. In fact, it is worth worrying about, for several reasons.
Feb 11th 2021
Think it through ...
After reading this short excerpt, try and predict why we should be worrying about inflation.
Turn and talk, reflecting on how inflationary pressure could destabilise our recovery following the Coronacession.
The full story is available here:
https://www.economist.com/leaders/2021/02/10/how-rising-inflation-could-disrupt-the-worlds-economic-policies
Turn and talk, reflecting on how inflationary pressure could destabilise our recovery following the Coronacession.
The full story is available here:
https://www.economist.com/leaders/2021/02/10/how-rising-inflation-could-disrupt-the-worlds-economic-policies
Exploring Inflation
The Inflation Explorer is an interactive tool that lets the user explore how prices of individual goods and services, and overall inflation, have changed over time. The Consumer Price Index (CPI) is the most well-known indicator of inflation in Australia. It measures the percentage change in the price of a ‘basket’ of goods and services, including thousands of items that Australians typically purchase, sorted into 87 categories and 11 groups.
Click on the link "Inflation Explorer" and complete the activities in the worksheet "learning-activity-exploring-inflation".
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Where's the Economics?
Use these Explainers from the RBA to learn about:
- how inflation is measured
- the difference between underlying and headline inflation
- limitations on the CPI
- Australia's inflation target
- the objectives of monetary policy
- how changes in monetary policy affect inflation
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