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When lotto began in 1987 the first division prize was worth $1,000,000. It could buy five houses. Today a first division prize of $1,000,000 can only buy two. The value of lotto prizes have gone down and the price of lotto tickets have gone up. With reference to the information above, explain the difference between a general price rise and an individual price rise. General price rise: on average most prices are rising EG amount of goods/services a lotto winner could buy with their 1st division winnings has decreased. Individual price rise: price of one good/service has increased. EG price of lotto tickets has increased. Achieved General price rise or individual price rise described Merit Difference explained EG: I - GPR and IPR defined E- difference explained R- reference to price of lotto tickets During March 2007 the adult minimum wage increased by almost ten percent from $10.20 and hour to $11.25. An Employers Association spokesperson said an increase in the adult minimum wage would cause a ripple affect pushing up all wages. Distinguish between cost push and demand pull inflation by explaining the impact of the increase in the adult minimum wage on producers and consumers. CP: when producers costs of production increase (eg as wages increase caused by an increase in the minimum wage) they increase their prices to maintain profit margins (decrease in AS) DP: when consumers incomes rise (eg was wages increase caused by an increase in the minimum wage) consumption spending by households increase ie demand increases (increase in AD) Achieved CP or DP defined or described Merit Difference explained EG: I - CP and DP defined E- difference explained R- reference to effect of min wage increase on consumers or producers a) Describe an impact of inflation on the value of New Zealand export receipts. Give a possible reason for your impact. Inflation in NZ pushes up the costs of NZ exports so exporters have to raise prices so NZ exports become more expensive for overseas consumers so the quantity falls so the value of export receipts falls overall (value is price × quantity). Achieved Idea described b) Describe an impact of inflation on the value of New Zealand import payments. Give a possible reason for your impact. Inflation in NZ pushes up the prices of domestically produced products. If inflation rates are lower in other countries then imports become relatively cheaper (ceteris paribus) so import quantities rise so the value of import payments increase (price × quantity). Achieved Idea described Price Level AD/AS Model AS Supply of G+S by all producers in the economy Pe Demand for G+S by all sectors of the economy AD Ye RGDP Price Level AD/AS Model AS Pe AD Ye RGDP c) Explain an impact of cost push inflation on growth. Refer to the AD/AS model. CP is caused by most firms cost of production increasing. As a result AS decreases (shift left) and real GDP/output decreases. CP inflation causes a reduction in economic growth. Achieved Growth decreases idea Merit Explained: I - CP is caused by can increase in COP E - AS decreases R - refers to AS curve Price Level AD/AS Model AS Pe AD Ye RGDP d) Explain an impact of demand pull inflation on growth. Refer to the AD/AS model. DP is caused by an increase in AD. As a result AD increases (shift right) and real GDP/output increases. DP inflation causes an increase in economic growth. Achieved Growth decreases idea Merit Explained: I - DP is caused by an increase in AD E- AD shifts right R- refers to AD curve