LWB Level 2 Analysing Inflation 2.1 Learning Workbook

The LWB Level 2 Analysing Inflation 2.1 Learning Workbook is a specialized, write-on guide designed for the NCEA Level 2 External Assessment: Analyse inflation using economic models. This workbook provides students with the analytical tools to understand why prices rise, how inflation is measured in New Zealand, and the significant effects it has on households, firms, and the wider economy.

Key Features

• Defining Inflation: Clear explanations of key concepts, including Inflation (a sustained increase in the general price level), Deflation, and Disinflation. Students learn to distinguish between a rise in the price of a single good and a rise in the general price level.

• Measuring Inflation (The CPI): A deep dive into the Consumer Price Index (CPI). Students learn how Stats NZ uses a "basket of goods and services" and "base years" to calculate the inflation rate.

  • Weighting: Understanding why a price change in petrol has a bigger impact on the CPI than a price change in salt.

• Causes of Inflation: Detailed analysis of the two primary drivers of price increases:

  • Cost-Push Inflation: Rising production costs (e.g., higher wages or imported raw materials) shifting the Aggregate Supply curve.

  • Demand-Pull Inflation: Excessive spending in the economy ("too much money chasing too few goods") shifting the Aggregate Demand curve.

• Economic Models: Extensive practice in using and drawing the Aggregate Demand / Aggregate Supply (AD/AS) model. Students master how to illustrate inflationary pressure and changes in Real GDP using these graphs.

• The Quantity Theory of Money: An introduction to the formula $MV = PQ$. Students learn the relationship between the money supply, the velocity of circulation, price levels, and real output.

• Impacts of Inflation (The Winners and Losers): Evaluates how inflation affects different groups, including:

  • Fixed Income Earners: Why their purchasing power falls.

  • Borrowers vs. Lenders: How unexpected inflation redistributes wealth.

  • Savers: The impact of inflation on the real value of savings.

  • Exporters and Importers: How domestic inflation affects New Zealand's international competitiveness.

• Real vs. Nominal Values: Practical exercises in converting nominal data (current prices) into real data (inflation-adjusted) to see the "true" change in wages or GDP.

• Monetary Policy: Explores the role of the Reserve Bank of New Zealand (RBNZ) and the Policy Targets Agreement. Students learn how the Official Cash Rate (OCR) is used as a tool to keep inflation within the target band (typically 1-3%).

• Achievement, Merit, and Excellence Scaffolding: Progresses from defining terms and shifting curves to the "Excellence" level of providing a comprehensive analysis of the long-term consequences of inflation on the New Zealand economy.

• Step-by-Step Worked Examples: Features model answers that demonstrate how to link changes in economic indicators to the AD/AS model and explain the resulting impact on price levels.

• Glossary of Economic Terms: A guide to essential vocabulary—such as Purchasing Power, Business Cycle, Stagflation, and Hyperinflation—ensuring students use the correct technical language.