QUESTION 69 (5 marks)
Calculate inflation in Years 2 and 3. Explain why restored freight capacity does not require the CPI to return to 100. Identify one consideration before responding with a further rate increase in Year 3.
Practice marking scheme
Answer
8% then approximately 1.85%; slower inflation need not reverse the prior price-level increase.
Working
Year 2: (108 − 100)/100 × 100 = 8%. Year 3: (110 − 108)/108 × 100 = 1.85185%. Restoration can reduce inflation pressure while other costs and demand keep the overall index above its earlier level. A further tightening should consider forecast persistence, expectations and existing policy lags, rather than react only to the old cumulative price rise.
Marking criteria
- Calculates both inflation rates. [2 marks]
- Distinguishes restored supply from reversal of the aggregate price level. [2 marks]
- Explains a relevant forward-looking policy consideration. [1 mark]
Practice question aligned to the current QCAA syllabus; review the worked solution and marking criteria.
View the QCAA syllabusCompare your working with the guide above.