Aii) Inflation Rate
Year 2010 2011 2012 2013 2014 2015 2016 2017
CPI 80.498 85.167 90.37 95.35 101.11 105.72 108.23 109.56
Inflation rate (%) 2.80 5.80 6.11 5.50 6.05 4.57 3.30 1.50
How to calculate Inflation Rate : (CPI this year -CPI last year)CPI last yearX 100Inflation Rate for 2011:
left1763760085.167 – 80.498 x 100
= 5.80 %
The graph above shows the inflation rate of Macao, China from the year 2010 until 2017. Based on the graph, the number CPI increase drastically for 7 years. Even though the number of CPI increases, the inflation rate is not consistent. The rate of the inflation increases in the first three years and then dropped from 6.11 % to 5.50 % at 2013. At 2014, it increased to 6.05 % but then starting from 2015, the inflation rate decreases to 1.50 % at 2017.
Increase in inflation rate
Inflation, was 2.8% in 2010 but ran high at 5.8% in 2011.
The reasons are strong demand from local residents and foreign visitors and high imported prices for consumer products.
Unemployment rate is loosen due to the tight labour market in 2011.
The increase in the price of meals purchased outside the home, m footwear and outpatients treatment, as well as school fees caused the inflation rate to increase.
Based on Macau Daily Times, the price of services went up by 7.71 %, 6.64 % and 4.65 % respectively year-on-year, while the index of communications decreased markedly by 7.92 %.
The higher charges for package tours during the summer holidays pushed up the price index of recreation and culture by 2.3 %
The chart above shows when the aggregate demand (AD) and aggregate supply (AS) intersect at Price of P’ and the output of Y’.
A rise in the AD then shifts the AD line to the right to AD’, intercepting the AS line at a higher point and pushing prices up to P’.
This happens due to the rise of economy with the shortages of labour and materials.
The business sector cannot respond to the excess demand by increasing sufficiently real output.
This will result in a situation of inflation where money is demanded too few goods for consumers.
ii) Decrease in inflation rate
The inflation in Mainland China started to go down in November 2011. As a result, inflation rate in Macau has come down gradually to 6.11 % in 2012 and 5.50% in 2013.
When inflation rate decreases, deflation occurs
Keynesian theory is an economic theory of a sum of spending in the economy and how it brings the its effects on the output and inflation in the market and economy.
119380016338550This Keynesian theory in economy is used to explain the situation of the market when the price increases due of the lack of stability in the aggregate supply and demand. When the aggregate demand in an economy is more than the aggregate supply, prices increases. This inflation results when there is a large increase in the consumer demand. When consumers purchase a similar good, it will cause the price to raise, and this can cause a demand-pull inflation.
Cost-push inflation is when the costs of supply increase or when the supply curve drops. Supply is either labor, raw materials, or capital.