Practise Cambridge IGCSE Economics by identifying inflation types, explaining demand and cost causes and evaluating different inflation outcomes in context.
In 2023, the Chinese Government said that it would aim for an economic growth rate of 5% and a steady increase in both exports and imports. It was expected that higher output would be caused mainly by an increase in household spending, although this could also result in inflation. Another aim of the Chinese Government was to keep the unemployment rate at around 5.5%. China has an ageing population and an ageing labour force.
Analyse how an increase in household spending could cause inflation.
(c
Analyse how an increase in household spending could
cause inflation.
Coherent analysis which might include:
Household spending / consumer expenditure / consumption
is a component of total demand (1) An increase in household spending would increase total demand (1).
Total demand could exceed total supply (1) higher demand
may encourage firms to raise prices (1) resulting in demand- pull inflation (1).
An increase in household spending could encourage firms to
invest / increase investment (1) increase their output (1) they
may hire more workers (1) this may drive up wages (1)
increase demand for raw materials / capital goods (1) raise price of raw materials / capital goods (1) increase costs of
production (1) cause cost-push inflation (1) cause a wage
price spiral (1).
6
Formula AD=C+I+G+(X-M) can be taken as recognition that C is a component on total demand.
Higher total (aggregate) demand and prices being pushed up can be shown on a diagram - one mark each.
Reward but do not expect reference to the multiplier effect.