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#### Inflation Rate Development Add in library

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Your task is to write a 3,000-word report addressed to the Board of Directors of Schmeckt Gut in which you address the following: - Do you think you can match the different projections? That is, do you think that a 5% increase in income is associated with a 10% tariff rate and a 2% inflation rate? Explain by linking your discussion to the following concepts: o supply and demand o aggregated demand and aggregated supply o the Philipps Curve, and o the Laffer curve. - What impact would the differe ...

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Tags: Australia Sydney Management Management University of Sydney Management

### Solutions

For inflation the concerned co-efficient is -14.2870. Like tariff, inflation by raising domestic price level adversely affects energy bar demand. The co-efficient suggests that 1% increase in inflation cause a 14% reduction in demand. The demand for energy bar thus is highly sensitive to changes in price level. The p value is 0.0785 which is greater than 0.05. The variable inflation rate therefore is not statistically significant. The relation though is not valid statistically, an overall inverse relation can be predicted between inflation and demand.

An increases in income allows people to afford healthy habits like going to gym, consuming energy bars and others. By the law of demand, price has a negative relation with demand. The magnitude of change in demand depends on the concerned elasticity of demand. Income by increasing purchasing power and demand create an upward pressure on price. Therefore, an income change might be associated with a change in price level or inflation. The price level can be further aggravated with changes in import tariff. Tariff raises the price of imported goods. The imported price when combines with domestic price level, results in an increase in the inflation rate. The association of income, inflation and tariff in influencing demand are analyzed with support of fundamental economic theories. The theories discussed here include basic model of demand and supply, macroeconomic model of aggregate demand and aggregate supply, the Phillips curve and the Laffer curve. Each has its own significance in determining demand, inflation, income and optimum amount of tariff rate.

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