Cost-push Inflation

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Topics: Inflation
Question 2:

(a) Which of the following are final goods and services and which are intermediate goods and services? Please explain why in your answer. (4 marks – 1 mark each)

(i) A new bulldozer to be used by a construction company;

When a construction company buys and uses a new bulldozer becomes intermediate goods when it is used in the production of their products services in subsequent periods.
(ii) A windscreen purchased by a motor vehicle spare parts supplier;

Intermediate goods – by national accounts (GDP) windscreen primary production value has already been accounted. It is being resold at a deflated value as second hand goods.
(iii) A home call car tuning service as a franchise of large national chain;

Final good – the resale value of the business contain value added. But it is not previously included in the national accounts.

(iv) Coking coal

Intermediate goods – as an ingredient it used into the production of other goods. As iron and steel, steam. Except being sold by exporting.

(b) An economy produces final goods and services with a market value of $900 billion in a given year, but only $875 billion worth of goods and services is sold to domestic or foreign buyers.
Is this nation’s GDP $900 billion or $875 billion? Explain your answer. (2 marks)

(c) Explain why a new truck sold for use by a transport company is a final good, even though it is a fixed investment (capital) used to produce other goods. (2 marks)
Should the value of this truck then be added to GDP or should only the goods it transports be included in GDP? (2 marks)

Question 3:

(i.a) Illustrate and explain with diagrams the difference between demand-pull and cost-push inflation; (2.5 marks for the diagram and 2.5 marks for the explanation);

(i.b) Provide (describe) two (2) causes of each type of inflation (2.5 marks for 2 demand-pull causes and 2.5 marks for 2 cost-push causes)

Cost-push

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