Turn on thread page Beta
    • Thread Starter
    Offline

    10
    ReputationRep:
    Hi guys,

    So I've began going through questions to strengthen my exam technique, as I'm currently at C/D and it's whats stopping me from getting A/B. Please tell me what you would give?


    Why does the government have inflation levels as a macro objective? (8)

    [Not sure how to put diagram, but it's a AD1 -> AD2 -> AD3 shift along a keynesian LRAS curve. It's all labeled.]

    Inflation is the gradual increase in the price of goods and services over time. Governments have low inflation as an objective in order to encourage a growth in GDP within the economy. At low levels of inflation, firm confidence is higher as people will be buying more goods and services due to lower prices. This will cause them to invest, therefore shifting AD1 to AD2 as shown on the graph. More investment also leads to more job prospects and, in time, an increase in employment as there are more jobs open. This will increase the amount of disposable income people have on average, leading to higher levels of consumption and a shift from AD2 to AD3.

    However, increases in consumption may lead to more inflation, as cost-push inflation occurs due to more pressure on the factors of production near full capacity, making them more expensive and forcing firms to drive prices up to sustain profits. This is shown on the graph in the upward shift from P1 to P2 and then to P3, signalling inflation.

    Inflation is also a goal for governments in order to keep the value of savings high. When inflation goes up, the purchasing power of consumers decreases as they can't afford as many goods/services. Therefore, their income is worth less. If they have savings in a bank, then if the rate of inflation exceeds the rate of interest they gain on savings, they will see a fall in its value. This can lead to a fall in household quality of life as well, as people may no longer be able to afford their lifestyle if they can buy less goods.

    ===================

    I apologise if this is absolutely awful. I feel like it is. :I
    • TSR Support Team
    • Clearing and Applications Advisor
    Offline

    21
    ReputationRep:
    TSR Support Team
    Clearing and Applications Advisor
    (Original post by IIPolaroidII)
    Hi guys,

    So I've began going through questions to strengthen my exam technique, as I'm currently at C/D and it's whats stopping me from getting A/B. Please tell me what you would give?


    Why does the government have inflation levels as a macro objective? (8)

    [Not sure how to put diagram, but it's a AD1 -> AD2 -> AD3 shift along a keynesian LRAS curve. It's all labeled.]

    Inflation is the gradual increase in the price of goods and services over time. Governments have low inflation as an objective in order to encourage a growth in GDP within the economy. At low levels of inflation, firm confidence is higher as people will be buying more goods and services due to lower prices. This will cause them to invest, therefore shifting AD1 to AD2 as shown on the graph. More investment also leads to more job prospects and, in time, an increase in employment as there are more jobs open. This will increase the amount of disposable income people have on average, leading to higher levels of consumption and a shift from AD2 to AD3.

    However, increases in consumption may lead to more inflation, as cost-push inflation occurs due to more pressure on the factors of production near full capacity, making them more expensive and forcing firms to drive prices up to sustain profits. This is shown on the graph in the upward shift from P1 to P2 and then to P3, signalling inflation.

    Inflation is also a goal for governments in order to keep the value of savings high. When inflation goes up, the purchasing power of consumers decreases as they can't afford as many goods/services. Therefore, their income is worth less. If they have savings in a bank, then if the rate of inflation exceeds the rate of interest they gain on savings, they will see a fall in its value. This can lead to a fall in household quality of life as well, as people may no longer be able to afford their lifestyle if they can buy less goods.

    ===================

    I apologise if this is absolutely awful. I feel like it is. :I
    I would be cautious with using 'lower prices' in the first paragraph. Remember that inflation is still an increase in the price level. A moderate level only means the rate of increase is lower than say a hyper-inflationary scenario.

    Further, I'd expand on the evaluative sentence after discussing why stimulating the use of savings for consumption is a good thing. Look at why this might not be as feasible or whether it is that important at all (i.e. perhaps discuss the very low savings ratio we have in the UK compared to other countries).
 
 
 
Poll
A-level students - how do you feel about your results?

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.