Economics 2281 · O Level · Inflation and deflation
Inflation and deflation — practice question
High technology (hi-tech) firms make use of a variety of resources, including labour and land. One hi-tech firm in the US has developed a new price index, which it says is more precise than the Consumer Prices Index (CPI). Central banks aim to get the most precise measure of inflation because inflation has consequences for many groups, including savers and borrowers, as well as for the level of investment in a country.
(a)[2]
Identify the reward earned by labour and the reward earned by enterprise.
(b)[4]
Explain how inflation may influence borrowers and savers.
(c)[6]
Analyse why accurate measurement of inflation is important to a government.
(d)[8]
Discuss whether an increase in investment would or would not reduce a deficit on the current account of the balance of payments.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme.