After a decade of rapid industrial growth, Eastlandia's central bank has aggressively tightened monetary policy to cool down an overheating property market. Consequently, GDP growth slowed to 2.1% last year, down from its historical average of 6.5%. While the currency has appreciated by 15% against major trading partners, the trade balance remains in positive surplus, though less pronounced than during the boom years. The government's structural reforms aim to transition the economy towards consumption-led development, but structural unemployment in industrial regions is rising.
Monetary tightening has successfully anchored inflation expectations. Annual inflation dropped from 8.2% to 1.5% over an eighteen-month period. This period of rapid disinflation has relieved pressure on real wages, which are finally beginning to recover. However, policymakers warn that if demand continues to weaken, the economy risks falling into a prolonged liquidity trap where monetary policy loses its efficacy.
Define the term 'disinflation' (Extract G, paragraph 2).
327 exam-style questions on AQA A Level Economics 2.3 Economic performance, covering 2.3.1 Economic growth and the economic cycle, 2.3.2 Employment and unemployment, 2.3.3 Inflation and deflation, and 2.3.4 Possible conflicts between macroeconomic policy objectives. Each one has a worked solution and a mark scheme showing where the marks go.