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IA2 - COMMENTARY COVERSHEET Economics commentary number...

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COMMENTARY COVERSHEET Economics commentary number: SL Number 2 Title of extract: Inflation at 10.55%, rate increase looms Source of extract: The Economic Times (Online): http://economictimes.indiatimes.com/news/economy/indicators/Inflation-at- 1055-rate-increase-looms/articleshow/6169684.cms Date of extract: 15/07/10 Word count: 740 words Date the commentary was written: 25/07/10 Section of the syllabus to which the commentary relates: Sections 3.3, 3.4, 3.5.2 Candidate name: Jacky Chong Candidate number:
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AD 1 AD 2 LRAS Y 1 Y f P 1 P 2 Real output (Y) Average price level 0 Figure 1: The economy is approaching full employment level of income. Demand-pull Inflation in India Jacky Chong India’s rate of inflation has been above 10% for five months already because of a ceaseless surge in aggregate demand. Due to the expected dread consequences of inflation, the likelihood of Indian’s government and central bank to curb inflation with certain policies is consistently rising. The economy of India has not yet reached the First World level, but from a macroeconomic perspective, it has been ahead of its developing counterparts; hence, India is a Newly Industrialized Country (NIC). Being a NIC, the raise of the components of its aggregate demand (total spending on goods and services in a period of time) is so rapid that the rise of aggregate supply (total amount of goods and services that all industries in the economy will produce at every given price level) can’t catch up with it. Thus, a Demand-pull inflation (increase in aggregate
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