Interpret CPI data and price-level changes, then build causal chains for inflation and judge how it affects purchasing power, savers, borrowers, firms and macroeconomic aims.
Jordan has a fixed foreign exchange rate with the US dollar. The monetary policy of Jordan, therefore, follows the monetary policy of the US very closely. Due to low confidence in the global economy in 2019, central banks around the world, including Jordan and the US, cut interest rates to stimulate growth. However, this may have conflicted with the macroeconomic aim of low inflation.
Define inflation.
In 2020, Paraguay's Consumer Prices Index rose by 3% and its foreign exchange rate fluctuated. Each year Paraguay experiences net emigration. People leave a country for a number of reasons. These include a low rate of economic growth and high level of market failure. The Paraguayan government does intervene in the economy in an attempt to reduce market failure.
Define Consumer Prices Index.
Read the source material carefully before answering Question 1.
Source material: the challenges facing Pakistan
Pakistan faces a number of economic challenges. These include responding to a rising population, improving its trade in goods balance, controlling the country's inflation rate and increasing the country's economic growth rate. To overcome these challenges, the Pakistani government is trying to increase investment. Currently, a high proportion of the country's resources are used to produce consumer goods.
The government is subsidising entrepreneurs and charities to open low-cost schools. It wants to reduce the dropout rate from schools and to raise educational standards. Some parents do not recognise the advantages that a merit good such as education can give their children, for example better health and better job opportunities. Some of the poor need their children to work from a young age to support the family. Government reforms have not yet led to a significant rise in teachers' wages but have improved school buildings and the number of children attending. The qualifications required to teach may be increased in the future.
Improved education may affect the number of skilled workers who emigrate and may raise the quantity and quality of goods and services produced. Any resulting higher income may influence the value of imports purchased, as shown in Table 1.
Table 1 GDP per head and imports per head in selected countries in 2017.
Pakistan has relatively high import tariffs. Revenue from import tariffs is of total tax revenue. The tariffs on vehicles, some of which have inelastic demand, are particularly high. Future Pakistani tariffs may be influenced by changes in other countries' trade policies, as well as other factors.
Answer all parts to Question 1. Refer to the source material in your answers.
Identify two possible causes of demand-pull inflation in Pakistan in 2017.