(a)[2]
Define the term ‘deflation’.
(b)[4]
Explain how demand-pull inflation differs from cost-push inflation.
(c)[6]
Analyse the ways a central bank might cut household borrowing.
(d)[8]
Discuss whether governments should encourage saving to rise.
Economics 2281 · O Level · Inflation and deflation
Inflation and deflation — practice question
In 2014, South Korea's household debt was climbing toward record highs. Households were borrowing more and setting aside less. The savings ratio dropped from 19% in 1985 to 4% in 2014. Even with such low saving, there was very little demand-pull or cost-push inflation. In fact, the country was close to deflation in 2014.