Household debt in South Korea in 2014 was rising to record highs. People were borrowing more and saving less: the savings ratio fell from 19% in 1985 to 4% in 2014. Even with such low saving, there was little demand-pull or cost-push inflation. In fact, in 2014 the country came close to deflation.
(a)[2]
Define the term ‘deflation’.
(b)[4]
Explain how demand-pull inflation differs from cost-push inflation.
(c)[6]
Analyse the ways in which a central bank might reduce household borrowing.
(d)[8]
Discuss whether a government ought to encourage higher saving.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “A decrease in the price level” …