Economics 9708/21 — May/June 2022
Cambridge AS Level · AS Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Price Stability · Aggregate Demand and Aggregate Supply · Fiscal Policy · Monetary Policy · Classification of Goods and Services · Economic Systems · +5 more
Inflation in Bangladesh
The annual inflation rate in Bangladesh, as measured by changes in the Consumer Prices Index (CPI), has varied in the period from 2009 to 2019 between 5.4% and 11.4%. The average annual rate of inflation over this period has been 6.7%, one of the highest in Asia.
Table 1.1: Bangladesh Annual Inflation Rate, February 2009 to 2019
| Year | Inflation Rate (% change in CPI) |
|---|---|
| 2009 | 5.4 |
| 2010 | 8.1 |
| 2011 | 11.4 |
| 2012 | 6.2 |
| 2013 | 7.5 |
| 2014 | 7.0 |
| 2015 | 6.2 |
| 2016 | 5.5 |
| 2017 | 5.7 |
| 2018 | 5.5 |
| 2019 | 5.5 |
Source: World Bank
The relatively high rate of inflation has been caused by price rises in both the food and the non-food sectors. In terms of the food sector, there have been significant rises in the price of fish, chicken and vegetables, particularly onions. In terms of the non-food sector, price rises have been significant in healthcare, transport and energy resources such as gas.
The Bangladesh Government is concerned about the possible consequences of a relatively high rate of inflation. It has now therefore set an annual inflation rate target of 5.5%.
The central bank of Bangladesh has the maintenance of price stability as one of its main objectives. It uses monetary policy to control the rate of increase of prices in the country. However, there is always the possibility that tough monetary policies could do more harm than good to an economy, compared with the possible use of fiscal policy.
The central bank recognises that inflation can be caused by both demand-pull and cost-push factors in the economy. A particular cause of inflation is the increase in wages. The Wage Rate Index (WRI) rose in December 2019 by 6.6% compared with a 6.4% rise in the index in November.
Source: Adapted from 'Inflation hits 9-month high', The Daily Star, Bangladesh, 16 October 2019, accessed on 24 February 2020
Describe the trend in the annual inflation rate of Bangladesh between 2009 and 2019.
Explain why price changes in the food and the non-food sectors in Bangladesh are treated differently when calculating the CPI.
Explain one domestic consequence and one external consequence for Bangladesh of having 'a relatively high rate of inflation'.
Analyse, with the help of aggregate demand and aggregate supply diagrams, how increasing wages can cause both demand-pull and cost-push inflation in Bangladesh.
‘However, there is always the possibility that tough monetary policies could do more harm than good to an economy, compared with the possible use of fiscal policy.’
Discuss whether monetary policy or fiscal policy is more likely to be effective in controlling inflation.
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