QUESTION 82 (6 marks)
The two forecasts assume the same supply recovery. Evaluate additional monetary tightening using price stability and full employment. Identify one further piece of evidence needed for a judgement.
Practice marking scheme
Answer
Holding avoids the forecast below-target inflation outcome, but the decision depends on employment and forecast reliability.
Working
Under a hold, inflation declines to 2.8% in Year 2 and 2.2% in Year 3. Additional tightening produces 2.1% then 1.4%, below the 2–3% range in Year 3. Further demand restraint could worsen employment during recovery. Employment/output forecasts and the probability of persistent inflation would help decide; neither path is guaranteed.
Marking criteria
- Uses the differing forecast outcomes accurately. [2 marks]
- Evaluates both price stability and employment. [2 marks]
- Identifies relevant missing evidence and uncertainty. [2 marks]
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.