Stuart Douce
2
Stuart Douce.
ISBN 978-0-473-14722-8
Copyright © Stuart Douce 2010.
First published 2009
Second edition.
This workbook is copyright. No part of this publication may be stored or transmitted in any form or
by any means, electronic or mechanical including recording or storage of any information in a
retrieval system, without permission in writing from the author.
No reproduction may be made, whether by photocopying or any other means, unless a written
licence has been obtained from the author or Copyright Licensing LTD.
Proof reader: Sum Leong
Hooper/supporter/encourager: Mark Wilson
Student advisor: Christian Bell
Proudly printed and bound in Wellington, New Zealand by Printlink using local and imported ingredients.
stuartdouce@gmail.com
Ratfink Resources
P.O. Box 153
Lincoln
Christchurch 7640
For students: www.year12economics.com
For teachers: www.nceaeconomics.com
Acknowledgements
This book would not exist without Mark Wilson’s support and encouragement. My thanks to Sum Leong for
proof reading. My Year 12 Economics class at Lincoln High School didn’t hold back on their suggestions
for improvements to this book. Year 12 Economics students at Wellington College who helped with the
first edition. Katie McGuiness, the other half of the LHS Commerce Department. Kristin Savage who
taught me not to just take the safe option.
3
To the student
There are only two steps to success: 1. Find out what is required. 2. Deliver. Your future really is up to you.
Your task is to provide the exam marker with evidence of the knowledge you have learnt throughout the year so
they can determine if you can describe (for achieved), explain (for merit) or fully explain (for excellence)
economic concepts.
NCEA markers compare what you have written to what is in their marking schedule. If your answer includes
the required evidence, you get awarded the grade for the question. In a way, questions are clues as to what is
in the marking schedule and your job is to predict and replicate the marking schedule in your exam paper.
In many merit and excellence questions, there is more than one correct answer. You will be judged on your
ability to follow a logical economic argument. Choose and write the one answer you feel most comfortable with.
Methods to revise:






Actively read class notes, textbooks and revision guides.
Practise old NCEA exams and read the judgement statements and markers’ / examiner’s reports.
Go through course content checklists / achievement standards.
Memorise key terms and economic models.
Practise drawing economic models and showing changes.
Make your own revision material (flashcards, posters, mind maps, flow charts, diagrams etc).
To the teacher
It is suggested students work through this exam preparation workbook throughout the year, either as end of
topic revision or for homework as each topic is taught. It is vital students practise test technique throughout
the year and that exam preparation is not rushed in Term Four.
In 2.5 Government Policies, policy responses to unforeseen and external influences has not been included
due to the wide scope of possible content and its current event nature. Policy responses are rarely examined.
However possible topics could include the governments fiscal response to the September 2010 earthquake
in Christchurch which was designd to kickstart the local economy following the natural disaster. 2.5
Government Policies is an external in 2011 but becomes internally assessed during 2012.
Suggestions for future improvements are always welcome. Send an email to stuartdouce@gmail.com
GUIDE TO SITTING EXTERNALS
Before the exam
 get a good nights sleep
 check the date and time of the
exam with a friend
 have a good breakfast
 last minute cramming isn’t always
helpful
 don’t panic or get anxious (!)
 bring all required gear in a clear
plastic bag (blue and black pens,
calculator, ruler, candidate slip,
school identification card)
 leave your phone/ipod at home
 leave home early to allow for
transport delays
During the exam
 be confident – show what you know
 complete exam booklets in any order
 allocate time to ensure you finish each booklet
 write/draw graphs in blue or black pen only
 use a ruler when drawing graphs
 write cheat notes in the margin
 write neatly and carefully (concise and precise)
 plan your answers first!
 answer every question
After the exam
 reflect on what you did well
 be proud of your success
 concentrate on your next exam
4
CONTENTS
2.1 Inflation (90794) Page 7
The description of inflation:

the difference between a persistent
rise in the price level and a price rise
in a particular market

inflation, deflation and disinflation
2.3 Economic Growth (90796) Page 96
The description of growth:

measures of economic growth

nominal and real
The use of economic models:

production possibility frontier

circular flow model
The use of economic models:

the quantity theory of money

the basic AS/AD model
The causes of economic growth:

opportunity cost of present
consumption

changes in investment, technology
and its impact on productivity, and
resources

the importance of events
The causes of inflation:

the relationship between the money
supply and the rate of inflation

cost-push and demand-pull inflation

interest rates and the rate of inflation

the business cycle
The effects of economic growth:

positive and negative outcomes of
growth

economic growth’s uneven impact on
the economy
The effects of inflation:

impact of inflation on firms and
households

impact of inflation on trade and growth
2.2 International Trade (90795) Page 48
The description of trade:

examples of international trade in
goods and services

sources of imports and export markets

the balance of payments

the classification of transactions in
New Zealand’s Balance of Payments
2.5 Government Policies (90798) Page 132
Price Stability:

monetary policy

fiscal policy

impact of inflation policies on growth
and trade
The use of economic models:

production possibility frontier to show
absolute advantage

production possibility frontier to show
comparative advantage

quantity of exports and imports at the
prevailing world prices, using the one
country model

how the cost of production, and
domestic demand determine the
quantities exported and imported,
using the one country model

quantity of exports and imports at the
prevailing world prices, using the two
country model

how the cost of production, and
domestic demand determine the
quantities exported and imported,
using the two country model
Balance of Payments:

trade agreements and organisations
trade regulations

government policies to promote trade

free trade versus protectionism

impact of trade policies on growth and
inflation
Economic Growth:

fiscal policy

Resource Management Act 1991

supply-side policies

impact of growth policies on trade and
inflation
Revision checklists and Practice exams

2.1 Inflation

2.2 Trade

2.3 Growth

2.5 Government Policies
Answers

2.1 Inflation 2.2 Trade

2.3 Growth 2.5 Government Policies
The effects of trade:

fluctuations in trade and the growth
and contraction of domestic industries

effects of fluctuations on growth
5
Prepare
1. Read the resource material/graph.
2. Read the question slowly.
3. Think about the concepts taught in class that relate to the question.
Plan
4.
5.
6.
7.
Perform
How to answer exam questions
8. Write your actual answer using (D), (E), (R) for explain questions (write D.E.R. on each line).
9. Read your answer to check for accuracy (eg demand/quantity demanded). Think concise and precise.
10. Tick off tasks (step 4) in question to ensure you have done everything required correctly.
Underline the tasks in the question (eg label, shade, give an example, use dotted lines).
Highlight command words (eg explain, state two).
Underline key terms (eg aggregate demand, market situation).
Write cheat notes/acronyms and draw sketch graphs in the margin (eg T.O.A.D.S.).
How to answer an explain question (merit)
Merit and excellence questions require you to explain concepts. Explain means you have to do three things:
(D) Define the relevant economic terms (may or may not be stated in the question).
Eg: Aggregate demand = _________________________ Investment = ___________________________
(E) Explain (say why or how) Start the sentence with the word “Because” and show how terms are linked.
Eg: Because __________________ so _______________ so _______________ so ____________.
(R) Relate back to the person’s or firm’s name/product/numbers in table/curves in a graph from the
question or resource material.
Eg: Aggregate demand curve shifts right from AD to AD1. Price level rises from PL1 to PL2.
Explain model answer
Tom drove his hatchback car in a bus only lane and got fined $150 by the police. He got really angry.
1. Explain why Tom got fined by the police.
(D) Hatchback = 2 door car. Bus lane = buses only. Fine = $ penalty. Police = law enforcement.
(E)Because cars are not allowed to use bus only lanes, Tom broke the law so he got fined
by the police.
(R) Tom got fined $150 by the police.
Practise explain using D.E.R
Emma did not have a warrant of fitness for her car. A parking warden gave her a $200 parking infringement.
notice.
2. Explain why Emma got fined by the parking warden.
(D)
(E)Because
(R)
Answer page 175
How to answer a fully explain question (excellence)
Use (D), (E), (R) but add (A) another point as part of your (E) “because” answer and use all relevant
economic terms. Go above and beyond what the question is asking and link the concepts together making
specific reference to economic models.
5
____
Setting Star Goals:
Specific (what
Timely (when)
Achieveable (how)
Realistic
Examples of goals:
Assessment results
Attendance
Behaviour
Revision notes
Course work
Homework
(why)
Term 1 Checkpoint Tick 
Attendance
Notes up to date
Assessment results
My STAR goals for Economics:
Term 2 Checkpoint Tick 
Attendance
Notes up to date
Assessment results
Steps to Success:
1. Find out what is required
2. Deliver
My level 2 results determine my place
at university / choice of university
hostel. I want a subject endorsement
in Economics. I have set my goals. I
am motivated and I am focused on
success.
Term 3 Checkpoint Tick 
Attendance
Notes up to date
Assessment results
Signed ___________________
My Achievement goals for
Economics (circle)
2.1 Inflation
2.2 Trade
2.3 Growth
2.4 Statistics
2.5 Policies
N
N
N
N
N
A
A
A
A
A
M
M
M
M
M
E
E
E
E
E
Term 4 Checkpoint Tick 
Attendance
Notes up to date
Assessment results
6
The description of inflation
the difference between a persistent rise in the price level and a price rise
in a particular market
inflation, deflation and disinflation.
The use of economic models
the quantity theory of money to illustrate the relationship between the money supply and the rate of inflation
the basic AS/AD model to illustrate cost-push and demand-pull inflation
The causes of inflation
the relationship between the money supply and the rate of inflation
cost-push and demand-pull inflation
interest rates and the rate of inflation
the business cycle.
The effects of inflation
impact of inflation on firms and households
impact of inflation on trade and growth.
7
–

The difference between a persistent rise in the price level and a
price rise in a particular market.
Price rise in a particular market
Persistent rise in the price level
Price of a single good or
service increases.
Caused by:
 increase in market demand
 decrease in market supply
Prices of most goods increase
on average.
Caused by:
 demand pull factors
 cost push factors
Eg:Increase in market demand
Eg:Increase in aggregate demand
Price
$
Price
Level
MS1
P2
Terms to memorise
Price level – Average level of
all prices.
Market demand – Sum of all
individual demand.
Market supply – Sum of all
individual supply.
Demand pull - Increase in
aggregate demand.
AS1
PL2
P1
MD2
PL1
MD1
Q2 Quantity
Q1
AD1
Y1
Get it right!
Exam technique
 Inflation is an increase in
the price level not the price
level itself.
 Note different curve labels
and axes on each graph.



AD2
Y2 Real GDP
Include an example of inflation in your answer even if you
arepush
not –
Cost
asked to.
Decrease in aggregate
Include an example of a rise in a particular
market in your answer
supply.
even if you are not asked to.
Refer back to the reference material in your
answer.demand – Sum
Aggregate
of all demand [C+I+G+(x-m)].
Aggregate supply – Total
sum
all supply.by 10%.
Petrol has increased by $1 per litre. Pumpkins are down by $1 each. The CPI
hasofincreased
1. Show on the graphs below a decrease in market supply and a decrease in aggregate supply. Fully label.
Decrease in market supply
Price
($)
Decrease in aggregate supply
demand
Price
Level
$
MS1
AS
P1
MD1
Q1
PL1
Quantity
AD
Y1
2. Explain why the CPI has increased while the price of pumpkins has decreased.
(D)
(E)
(R)
8
Real Output
The price of milk has increased by 50% in the last year. Farmers are saying this is due to
decreased production combined with an increase in electricity costs. Economists report that
escalating energy costs are a concern for all firms.
(a)
Assessor’s
use only
(CIRCLE)
gfgf
From the information above, identify a cause of an increase in the price of milk.
A
(b)
Use an example to describe how an individual price rise could cause a general price rise.
A
(c)
Explain how an increase in market demand for milk causes the price of milk to rise.
(D)
(E)
(R)
(d)
M
Explain how a decrease in market supply of milk causes the price of milk to rise.
(D)
(E)
M
(R)
(e)
Explain why goods such as petrol contribute more to inflation than rises in the price of milk.
(D)
(E)
M
(R)
(f)
Explain how increases in the cost of electricity can cause a persistent price rise.
(D)
(E)
M
(R)
Answers page 175
My grade for this section: (circle)
ACHIEVED
MERIT
9
EXCELLENCE
A= Any 2
M=A+2M
E=A+3M
–
 Inflation, deflation and disinflation.
Terms to memorise
Inflation
Deflation
Decrease in
the price level
Increase in the
price level
Disinflation – Decrease in
the rate of inflation. Ie price
level increases but at a
decreasing rate.
2011
Increase
in price
level
this year
8
5
3
1
0
-1
-3
-5
2010
Increase
in price
level
last year
Deflation – Decease in the
price level.
2009
Disinflation
Inflation – Increase in the
price level.
Inflation disinflation deflation
Price level – General level
of prices of all goods and
services.
Get it right!
Exam technique

 Give an example for inflation/deflation/disinflation with your definition.
Disinflation is a
decrease in the rate of
inflation. Prices are still
increasing, but by less
than before.
 Specifically refer to the numbers / graph / data from the reference
material.
The current inflation rate is 4%. Scott cannot find last year’s data to compare it with. Caroline said if the
price level decreased it would be called deflation.
1.
Explain why an increase in the price level could be recorded as inflation or disinflation if the previous quarter
data was unavailable.
(D)
(E)
(R)
2.
Explain the difference between inflation and deflation.
(D)
(E)
(R)
10
The bar graph below shows the percentage change in the price level between 2007 and 2012.
Assesor’s
use only
(CIRCLE)
gfgf
% change
in price
level
5
3
1
0
-1
2008
2009
2009
2010
2011
2012
(a)
From the graph above, identify one period of inflation and one period of disinflation.
A
(b)
Draw a bar on the graph above to show a period of deflation during 2012.
A
(c)
Explain why at least two quarters of data is required for a period of disinflation to be identified.
(D)
(E)
M
(R)
(d)
With reference to the graph above, explain the difference between inflation and deflation.
(D)
(E)
(R)
(e)
M
Explain why deflation is a problem in an economy.
(D)
(E)
(R)
(f)
M
Explain why inflation, deflation, or disinflation data is always out of date.
(D)
(E)
M
(R)
Answers page 176
My grade for this section: (circle)
ACHIEVED
11
MERIT
EXCELLENCE
A= Any 2
M=A+2M
E=A+3M
–

The quantity theory of money to illustrate the relationship
between the money supply and the rate of inflation.
Quantity theory of money equation (QTOM)
Terms to memorise
Quantity theory of money –
Equation showing relationship
between M, V, P and Q.
Money supply – Total
quantity of money.
M
Money supply
Total value of
money in
economy
X
V
=
P
Q
X
Price level
Velocity of
circulation
Number of
transactions
Quantity of
GDP
Total
production
Average level
of prices
Assumption:
known and fixed
Velocity of circulation (VOC)
– Number of times money
changes hands.
Price level – Average level of
all prices.
Assumption:
known and fixed
Increase in the price level –
Inflation.
$100m
Quantity of goods and
services - GDP value of all
goods and services produced.
in NZ in a year
Example:
$100m
=
+$10m
Get it right!
 Memorise “Ps and Qs go
together”.
 Multiply each side.
 V.O.C. is not speed,
it is the number of
transactions.
+$10m
Exam technique

Refer to the QTOM equation in your answer.

Define the terms from QTOM that you use (eg velocity of circulation).

Give an example of the QTOM using examples in your answer.
The quantity theory of money states that the money supply multiplied by the velocity of circulation will
equal the price level multiplied by the quantity of goods and services produced in an economy.
1.
Describe the relationship that the quantity theory of money (or exchange) demonstrate
2.
Explain using the QTOM, what would happen to inflation if the money supply increased by ten percent.
(D)
(E)
(R)
3.
Explain why V and Q are assumed to be known and constant figures.
(D)
(E)
(R)
12
Assessor’s
use only
The quantity theory of money equation states that MV = PQ. Given that the
money supply is 100, the price level is 5 and the quantity of goods is 100.
(a)
(CIRCLE)
gfgf
Use the information above to identify the number of transactions in the economy in the year.
A
(b)
State the term used to describe an increase in the price level.
A
(c)
Calculate the expected increase in the price level if the money supply increased by 6%.
A
(d)
Explain using the quantity theory of money, why an increase in the money supply of 10%
may only result in a five percent increase in the price level.
(D)
(E)
(R)
(e)
M
Explain using the quantity theory of money equation, what would happen to inflation if the
money supply and real GDP both increased by five percent in a year.
(D)
(E)
(R)
(f)
M
Explain the main relationship the quantity theory of money demonstrates.
(D)
(E)
(R)
M
A= Any 2
M=A+2M
E=A+3M
Answers page 176
My grade for this section: (circle)
ACHIEVED
13
MERIT
EXCELLENCE
2.1 Inflation
Model answers and exam practice
QUESTION ONE – achieved questions

Individual price rise (graph 1)

Persistent price rise (graph 2)
Rise in a particular market
Most prices on average are increasing
Shown by market demand/supply graph
Consumer Price Index (CPI) increasing
Eg increase in market demand (or decrease in
market supply) for kumera.
Eg increase in aggregate demand (or decrease
in aggregate supply) in economy.
___________________
__________________
GRAPH 1: show an increase in market demand for Kumera. Fully label the graph and any changes (D.A.L)
GRAPH 2: show an increase in aggregate demand. Fully label the graph and any changes (D.A.L)
A rise in a particular market may cause a persistent increase in the price level if it is used by most firms in
production. Eg petrol, electricity, internet, sugar.
(A) Inflation – Prices on average are increasing. Eg 2%. Measured by CPI. Eg most goods and
services cost more than they did last year. Price level increased from PL1 to PL2.
(B) Deflation – Prices on average are decreasing. Eg -2% measured by CPI. Eg most goods and
services cost less than they did last year. Price level decreased from PL1 to PL2.
(C) Disinflation – Prices on average are increasing, but by less than they went up last year. Eg
2009 prices went up by 8% 2010 they went up by 4%. (decrease in the rate of inflation).
TASK: Fill in blank
squares with (A),(B) or (C)
05
06
07
08
20042007
20052008
20062009
20072010
20082011
price level
5%
4%
-2%
1%
4%
14
CPI
1010
1020
1025
900
QUESTION TWO – achieved and merit questions
Quantity theory of money MV = PQ
Money supply × velocity of circulation = price level × quantity of output (MV = PQ)
M = money supply (amount of money in the economy. Controlled by the Reserve Bank (Govt)
V = number of transactions in a year (known, fixed quantity – assumption)
P = Price level. An increase in the price level is inflation
Q = quantity of goods and services produced in a year (GDP). (known fixed quantity-assumption)
Calculations: eg V =10 Q = 20. If M increases by 10% then P (inflation) will increase by 10% too.
If M increases then P will increase as V and Q are constant, relatively fixed. These are assumptions.
If the govt decreases M they can decrease P. Sosphicated theory = V and Q can change but if the change in Q is les
change in V then P will also change.
Aggregate demand and aggregate supply model


Demand Pull Inflation
Increase in aggregate demand
C or I or G or X-M increases
___________________
Cost Push Inflation
Decrease in aggregate supply
Most firms costs of production increase so AS decrease
maintain profit margins)
___________________
Since increases in (C), (I), (G), (X-M) cause AD
to rise, DP inflation occurs as AD shifts from
AD1 to AD2 and the price level increases from
PL1 to PL2.
Since most firms costs of production rise (eg
petrol price rise) so AS decreases from AS1
to AS2 as output becomes relatively less
profitable.
Examples:
Firms increase prices to maintain profit
margins. Cost push inflation occurs as price
level increases from PL1 to PL2
Interest rates decrease (C) and (I)household
incomes increase (C) Business confidence
increases (I) Transfers increase (G)Exports
increase(X-M)
Examples: wages, electricity, petrol prices
increase.
Task: Fully label the graph above and show
demand pull inflation. Fully label changes.
Remember to label all curves and D.A.L
Task: Fully label the graph above and show
cost push inflation. Fully label changes.
Remember to label all curves and D.A.L
15
QUESTION THREE – achieved / merit / excellence questions
Causes of inflation
1. Money supply and inflation
If the money supply increases then prices will rise as “more money is chasing the same amount of goods
so consumers bid up prices”
2. Demand Pull Inflation (explain…)
3. Cost Push Inflation (explain…)
Increase in consumer spending:
Firms costs of production increase:
D_______________________
________________________
E_______________________
________________________
________________________
________________________
R_______________________
D_______________________
________________________
E_______________________
____________________________
_________________________
________________________
R_______________________
Demand Pull Inflation (explain…)
Cost Push Inflation (explain…)
Increase in investment:
Electricity prices increase:
D_______________________
D_______________________
________________________
________________________
E_______________________
E_______________________
________________________________
____________________________
________________________
________________________
________________________
________________________
R_______________________
R_______________________
Demand Pull Inflation (explain…)
Cost push Inflation (explain…)
Decrease in interest rates:
Wages increase:
D_______________________
D_______________________
________________________
________________________
E_______________________
E_______________________
________________________________
____________________________
________________________
________________________
________________________
_________________________
R_______________________
R_______________________
16
4a. Interest rates increase
4b. Interest rates decrease
DEMAND PULL INFLATION
(C) decreases: consumption spending by
households decreases (save more due to higher
reward and borrow less and spend less as
repayment more expensive).
DEMAND PULL INFLATION
(C) increases: consumption spending by
households increases (save less due to lower
reward and borrow more and spend more as
repayments become cheaper).
(I) decreases: firms take out less investment
loans as repayments more expensive and firms
are less confident to invest.
(I) increases: firms take out more investment
loans as repayments become cheaper and
firms are more confident to invest.
Since C and I decrease, AD decreases from AD1
to AD2, so the price level falls from PL1 to PL2.
Less demand pull inflation.
Since C and I increase, AD increases from AD1
to AD2, so the price level rises from PL1 to
PL2. Demand pull inflation occurs
COST PUSH INFLATION
COST PUSH INFLATION
Most firms costs of production increase as
investment loans become more expensive to
repay. So firms increase prices to maintain profit
margins and AS decreases from AS1 to AS2
and the price level increases from PL1 to PL2.
Cost push inflation occurs.
Most firms costs of production decrease as
investment loans become cheaper to repay. So
firms decrease prices and maintain profit
margins and AS increases from AS1 to AS2
and the price level decreases from PL1 to PL2.
Cost push inflationary pressure eases.
5b. The business cycle
Explain why inflation is a problem during the
boom/peak phase
5a. The business cycle Task: Fully label the
trade cycle and
Draw and label the phasesidentify
of the business
each phase
cycle.
D___________________________
E___________________________
_____________________________
R___________________________
Explain why inflation would be low during a
recession/downturn/depression phase.
D___________________________
E___________________________
_____________________________
R_______________________
QUESTION FOUR – achieved / merit / excellence
Impact of inflation on Trade / Growth
Impact of inflation on households / firms
Households
Fiscal drag (reduces disposable income)
Those on fixed incomes lose purchasing power
Value of savings eroded away
Loans become easier to repay
Exports decrease: exporters’ costs rise so raise
prices so less competitive overseas so revenue
and sales fall.
Imports increase: become relatively cheaper
than domestic production if NZ inflation rate
higher than inflation rate of trading partners.
Firms
Difficult to set prices and plan for the future
Costs of production rise to less competitive
Have to raise prices to maintain profit margins so
sales fall
Labour costs rise as workers demand pay rises
Growth falls: firms less confident to invest in
capital goods so less increases in real GDP.
Sales decrease as purchasing power of
households falls so firms cut back production
and so growth decreases.
17
The difference between a persistent price rise and a price rise in a particular market
 For merit and excellence I can:

For achievement I can:
Define an individual price rise
Explain the difference between an individual price
rise and a general price rise
Define a general price rise
Explain how an individual price rise may cause
a general price rise
Identify an individual price rise
Predict the cause of an individual price rise
or a general price rise
Identify a general price rise
Explain the cause of an individual price rise
Inflation, deflation and disinflation
 For merit and excellence I can:

For achievement I can:
Define inflation, deflation and disinflation
Explain the difference between inflation, deflation
and disinflation
Identify periods of inflation, deflation and
Predict periods of inflation, deflation and
disinflation
disinflation based on given information
State examples of periods of inflation,
Compare and contrast periods of inflation,
deflation and disinflation
deflation and disinflation
Graph periods of inflation, deflation and
Give reasons for inflation, deflation and
disinflation
disinflation
Quantity theory of money. The relationship between the money supply and the rate of inflation
 For merit and excellence I can:

For achievement I can:
Define the QTOM equation
Calculate P using the QTOM equation
Identify the four components of QTOM
Explain the relationship between M and P
Describe the assumptions of the model
Explain the crude theory
State the link between M and P
Explain the sophisticated theory
The basic AD/AS model to illustrate cost push and demand pull inflation
 For merit and excellence I can:

For achievement I can:
Label the equilibrium
Explain reasons for increases in the aggregate
demand curve
Describe aggregate demand and aggregate
Explain reasons for decreases in the aggregate
supply
supply curve
Define cost push and demand pull inflation
Use the AD/AS model to explain how an event
impacts on inflation (the price level) and growth
(real output)
Draw the AD/AS model and label it
Predict aggregate demand and aggregate
supply shifts
Use arrows, lines and labels to show increases
Explain how components of aggregate demand
in aggregate demand and decreases in
increase, causing aggregate demand to increase
aggregate supply
resulting in demand pull inflation
The relationship between the money supply and the rate of inflation
 For merit and excellence I can:
For achievement I can:
Describe the relationship between the money
Explain the link between the money supply and
supply and the rate of inflation
the rate of inflation
Identify factors that determine the size of
Explain the reasons that determine the size of
the money supply
the money supply
State the quantity theory of money equation
Use the quantity theory of money equation
to explain the link between the money supply
and the inflation rate
Define the money supply
Explain how an increase in the money supply
causes inflation
42
18

Cost push and demand pull inflation
 For merit and excellence I can:
For achievement I can:
Define cost push and demand pull inflation
Explain causes of cost push inflation
Identify causes of cost push and demand pull
Explain how decreases in aggregate supply
inflation
cause cost push inflation
Describe causes of cost push and demand pull
Explain causes of demand pull inflation
inflation
Label the effect of cost push or demand pull
Explain how increases in aggregate demand
inflation on an AD/AS model
cause demand pull inflation
State the effect of an increase in AD / decrease
Explain the effect of cost push or demand pull
in AS on the price level
inflation on AD or AS using the AD/AS model

Interest rates and the rate of inflation
 For merit and excellence I can:

For achievement I can:
Define interest rates
Explain the impact of interest rates on the
exchange rate and net exports, aggregate
demand and demand pull inflation
Describe the impact of lower interest rates
Explain the impact of interest rates on the
on inflation
exchange rate and the change in import costs
and aggregate supply and cost push inflation
Describe the impact of higher interest rates
Explain the impact of lower interest rates on
on inflation
inflation
Identify factors that change interest rates
Explain the impact of higher interest rates
on inflation
Describe the impact of interest rates on the
Use the AD/AS model to explain changes in
exchange rate and net exports (AD curve)
interest rates on AS and AD as causes of inflation
The business cycle
 For merit and excellence I can:

Explain at which stage of the business cycle
inflation is likely to be at its highest/lowest
Identify the inflationary pressure at each
Explain at which stage of the business cycle
stage of the business cycle
investment is likely to be at its highest/lowest
Define the business cycle
Explain at which stage of the business cycle GDP
is likely to be at its highest/lowest
Sketch and label the business cycle
Explain at which stage employment will be high
For achievement I can:
State the phases of the business cycle
The impacts of inflation on firms and households
 For merit and excellence I can:
For achievement I can:
Identify impacts of inflation on households
Explain the impacts of inflation on households
Describe the impact of inflation on savers
Explain the impact of inflation on savers
and borrowers
and borrowers
Describe the impact of inflation on fixed
Explain the impact of inflation on fixed income
income earners
earners
Identify the impact of inflation on firms
Explain the impacts of inflation on firms
Identify the impact of inflation on exporters
Explain the impacts of inflation on exporters

The impacts of inflation on trade and growth
 For merit and excellence I can:

For achievement I can:
Identify positive and negative impacts of
Explain the impact on inflation on imports and
inflation on exporters and importers
exports
Describe the impact of inflation on net exports
Explain the different impacts of inflation on
goods produced for domestic and export markets
Describe the impact of inflation on the current
Explain why firms prefer a predicatable, low
account
inflation environment
Describe the impact of inflation on growth
Explain the impact of inflation on GDP / growth
43
19
2.1 INFLATION PRACTICE EXAM QUESTION ONE
(a) Describe the term deflation.
Assessor’s
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Internet charges are likely to rise to cover costs of new super fast
broadband technology, warns the telecommunications industry.
(b) Use graph one to show the cause of an increase in the price of broadband internet.
Fully label the changes.
GRAPH ONE
Market for broadband Internet
Price $
Price
MS
Ep
Ep
MD
Eq
Quantity
(c) Describe why an increase in the cost of broadband internet is likely to be inflationary.
20
2.1 INFLATION PRACTICE EXAM QUESTION TWO
Asses
The quantity theory of money equation states that the money supply multiplied by the
velocity of circulation equals the price level multiplied by real GDP.
(a) State one cause of an increase in the money supply.
(b) Use the quantity theory of money equation to explain why an increase in the money supply could
cause inflation.
(c) It is possible an increase in the money supply may not cause inflation. Refer to the quantity
theory of money equation to describe why.
21
Assessor’s
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2.1 INFLATION PRACTICE EXAM QUESTION THREE
Asses
Half a million New Zealanders now pay 2% of their salary into Kiwisaver retirement
savings schemes. Employer contributions of 1% are made on top of current salaries.
GRAPH TWO
The New Zealand Economy
AS
AD
(a) Fully label the two axes on GRAPH TWO.
(b) Fully label the effects of the Kiwisaver scheme on both curves in GRAPH TWO.
(c) Explain the changes to the aggregate demand and aggregate supply curves.
AD curve:
____________________________________________________________________
AS curve:
____________________________________________________________________
(d) Refer to GRAPH TWO to explain how the Kiwisaver savings scheme has impacted on inflation.
(e) Refer to GRAPH TWO to predict the impact on inflation if employer contributions to workers’
Kiwisaver accounts rise to 4% next year.
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Assessor’s
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2.1 INFLATION PRACTICE EXAM QUESTION FOUR
Asses
Economists are worried about demand-pull inflation and the effect it will have on New
Zealand firms. They say it will be interesting to see how international trade will be affected.
Other experts are worried about the impact inflation will have on economic growth.
(a) What is demand-pull inflation?
(b) Describe TWO negative impacts of inflation on domestic firms that produce goods for
New Zealand consumers.
Impact One
Impact Two
(c) Fully explain how inflation impacts on exporters and importers.
Impact on exporters
Impact on importers
(d) Fully explain one reason why high inflation restricts growth.
Answers page 183
My grade for this exam: (circle)
ACHIEVED
23
MERIT
EXCELLENCE
Assessor’s
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