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Explain the term price inflation - Leaving Cert Economics - Question c - 2017
Question c
Explain the term price inflation. State one economic effect which any two of the following developments may have on the rate of price inflation in Ireland. Explain ... show full transcript
Worked Solution & Example Answer:Explain the term price inflation - Leaving Cert Economics - Question c - 2017
Step 1
Explain the term price inflation.
Answer
Price inflation refers to the sustained increase in the general price level of goods and services in an economy over a period of time. This phenomenon results in the decrease of purchasing power, meaning that consumers require more money to purchase the same quantity of goods and services than they did in the past.
Step 2
an increase in world oil prices.
Answer
An increase in world oil prices typically leads to higher costs for transportation and production. This rise in costs is likely to be passed on to consumers in the form of higher prices for goods and services, thus contributing to an increase in the inflation rate.
Step 3
a decrease in the rates of Irish indirect taxes.
Answer
A decrease in the rates of Irish indirect taxes, such as VAT, would generally result in lower prices for goods and services. This reduction in costs can lead to a decrease in the overall inflation rate, as consumers benefit from reduced prices at the point of sale.
Step 4
a decrease in the Irish level of savings.
Answer
When the level of savings decreases, it may indicate that consumers are spending more of their income. This heightened demand for goods and services can drive prices up, potentially resulting in an increase in the inflation rate as supply struggles to keep pace with rising demand.