Measurement
What does CPI stand for?
Consumer Price Index
What is demand-pull inflation?
When demand exceeds supply, causing prices to rise.
Who are the Economic Participants?
Businesses, Individuals, and Government.
Who sets monetary policy in Australia?
The Reserve Bank of Australia (RBA).
Define inflation.
A sustained increase in the general price level of goods and services.
Name one of the RBA’s two underlying inflation measures.
Trimmed mean or weighted median inflation
What global event caused cost-push inflation in 2022?
The Russia–Ukraine war → energy and fuel price spikes.
How does inflation affect individuals?
Real wages fall, cost of living increases, savings lose value.
What is the current cash rate (as of 2025)?
4.35% (subject to update if new RBA release available)
What was Australia’s peak inflation rate in 2022?
Over 7% (ABS, 2023)
What does trimmed mean exclude?
The trimmed mean removes the 15% of items with the largest and smallest price changes.
How does a weaker AUD cause imported inflation?
Imports become more expensive in AUD, pushing domestic prices up.
What might businesses do if their input costs rise?
Raise prices or cut costs; may delay hiring or investment.
Name one cost-of-living policy in the 2023–24 budget.
Energy bill rebates or increased rent assistance.
How can sustained inflation affect income inequality?
nflation tends to hurt low-income earners more, especially if wages don’t rise equally, while asset holders (e.g. property owners) benefit from capital gains.
True or false: CPI includes imported goods.
True - CPI includes both domestic and imported items.
What causes inflationary expectations to rise?
If people expect future price increases, they spend or raise prices now.
How can government spending cause inflation?
Stimulus or tax cuts increase aggregate demand, pushing prices up.
How do interest rate hikes reduce inflation?
They make borrowing more expensive → reduce spending and demand.
Why can inflation hurt exporters?
Domestic goods become more expensive than foreign competitors’, reducing demand.
Explain why the RBA targets 2–3% inflation.
It promotes price stability, sustainable growth, and allows time for wages and businesses to adjust without causing uncertainty.
How could businesses contribute to demand-pull inflation?
By increasing production aggressively or advertising heavily, stimulating excessive demand.
Explain how each BIG group responds to inflation differently.
Businesses raise prices or cut costs; individuals reduce spending; governments raise interest rates or offer relief.
Evaluate one strength and one weakness of the government’s inflation response.
Strength: RBA rate hikes reduced inflation from 7% to 3.6%.
Weakness: Increased mortgage stress and slowed economic growth.
Evaluate why both high inflation and deflation are considered risks for an economy.
High inflation erodes purchasing power and causes instability.
Deflation discourages spending and investment, leading to economic stagnation. Both reduce economic confidence and policy flexibility.