Macroeconomics Case study analysis 2022

Running head: MACROECONOMICS
Macroeconomics: Case study analysis
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1
MACROECONOMICS Table of Contents
CASE STUDY 1..............................................................................................................................2
Answer 1......................................................................................................................................2
Answer 2......................................................................................................................................2
Answer 3......................................................................................................................................2
Answer 4......................................................................................................................................3
Answer 5......................................................................................................................................4
Answer 6......................................................................................................................................4
CASE STUDY 2..............................................................................................................................5
Answer 1......................................................................................................................................5
Answer 2......................................................................................................................................5
Answer 3......................................................................................................................................6
Answer 4......................................................................................................................................6
Answer 5......................................................................................................................................7
References........................................................................................................................................9

2
MACROECONOMICS
CASE STUDY 1
Answer 1
Inflation refers to the increase in the average price level in an economy. As stated by
Megaravalli (2019), the rate at which the average price of a basket of selected products and
services in a country rises over a certain period of time is known as inflation. It decreases the
purchasing power of the currency of a nation, and hence, cost of living increases due to inflation,
as people need to spend more money than earlier to purchase same unit of goods and services. It
is of two types, demand pull and cost push. When demand outpaces the supply in the market,
demand pull inflation occurs. On the other hand, when supply is constrained but demand is not, it
generates cost push inflation (Heijdra 2017).
Answer 2
CPI refers to Consumer Price Index, which is the measure of the cost of living while core
CPI is the CPI excluding the value or prices of food and energy (Church 2016). The above
mentioned factors are excluded from CPI to obtain the core CPI because these prices are highly
volatile. The difference between CPI and core CPI indicates the volatility of prices of food and
energy, which affects the household budgets and consumptions maximum (IMF 2020). Turkey
has been experiencing a very high inflation rate over the past few years, which reached highest in
15 years to more than 25% in October 2018, while it dropped in 2019 and in March 2020, the
inflation dropped to 11.86% (Daily Sabah 2020). It has been noticed that drop in the global oil
prices lowered the inflation rate to 11.86%, and the energy prices and the prices of fresh fruit and
vegetables decreased significantly, which contributed in the slowdown in CPI. On the other
hand, the price of non-fresh fruit and vegetables increased during this time. Thus, it can be said
that while the CPI of turkey is falling with an expectation to reach single digit, with dropping of
global oil price and fall in food inflation from 10.6% in February to 10.1% in March, 2020, the
core CPI continues to increase (Mercan 2020).
Answer 3
The prices of vegetables are highly volatile. Thus, these prices are excluded while
calculating the core CPI (Felis and Garrido 2015). The vegetable price fell significantly in

3
MACROECONOMICS
Quantity
supplied in
domestic market
Price
P1
Q1
P2
Q2
D
S1
S2
turkey, affecting the overall inflation rate in March, 2020. The reason for this can be attributed to
the increase of supply of vegetables in the domestic market. Due to the coronavirus outbreak, the
borders of Iraq and Iran are closed and that negatively affected the exports of vegetables to the
neighboring countries. Therefore the domestic supply of vegetables increased considerably,
which pushed down the vegetable price in the domestic market.
Figure 1: Impact of increase in vegetables supply in domestic market
Figure 1 shows that the supply curve shifted rightward due to increase in vegetable
supply in the domestic market resulting from fall in export, and while demand remaining same,
the quantity supplied increases and price falls, influencing the CPI.
Answer 4
Speculation of further inflation is one of the causes that triggers inflation in an economy.
Rise in the price level creates an expectation of a rise in the wage of the workers. This hike in
wage pushes up the cost of production and that results in a cost push inflation in the economy.
On the other hand, if the wage level increases, then people have more money to spend and as
they expect that the price level would rise again, their demand for goods and services increases,