External environment - Economic indicators
Worksheet 1 - Inflation
1. Go to the data section and find the figures for inflation for the last 15 years. You will need to look at the following variable:
- CZBH UK retail prices - all goods
Fill in the figures in the table below (or download them into a spreadsheet program).
| Year | Inflation |
|---|---|
| 1988 | |
| 1989 | |
| 1990 | |
| 1991 | |
| 1992 | |
| 1993 | |
| 1994 | |
| 1995 | |
| 1996 | |
| 1997 | |
| 1998 | |
| 1999 | |
| 2000 | |
| 2001 | |
| 2002 | |
| 2003 |
(3 Marks)
2. Outline the reasons why businesses are likely to be concerned about high levels of inflation.
(5 Marks)
3. What do you think may have caused the inflation in 1989/90? (N.B. This period was known as the 'Lawson Boom' as the Chancellor Nigel Lawson stimulated the economy with a series of tax cuts and other measures. The relatively high inflation experienced in the UK between 1989 and 1991 was associated with a series of tax cuts in budgets by the then Chancellor of the Exchequer, Nigel Lawson.)
Using Aggregate Demand and Aggregate Supply analysis assess how lower direct taxation of income and lower interest rates would affect the performance of the economy.
(10 Marks)
4. Who is most likely to be disadvantaged in periods of high inflation? Examine the impact of inflation on the following groups of people:
a) The elderly on a fixed income pension
b) Savers - when the rate of inflation is higher than the interest rate
c) A business in a highly competitive international market when inflation in the UK is at a higher level than our major trading partners
(9 Marks)
5. Use the glossary to get definitions of cost-push and demand-pull inflation and make a note of them below.
Cost-push inflation
Demand-pull inflation
(4 Marks)
6. Identify each of the following causes of inflation as either cost-push or demand-pull factors (Delete the factor in bold that doesn't apply).
- Increased trade union militancy pushes up average wage levels. cost-push/demand-pull
- The exchange rate depreciates forcing up the price of raw materials bought from overseas. cost-push/demand-pull
- The government cuts the level of income tax leading to an increase in consumer spending. cost-push/demand-pull
- Increasing house prices make people feel wealthier and this pushes up retail sales. cost-push/demand-pull
(8 Marks)
Total Marks = 39
