Factors Contributing to Inflation and Economic Principles

This assignment involves analyzing factors contributing to inflation, such as demand pull, impact of tariffs on income, and the Phillips Curve. It also includes applying economic principles to environmental policy, decision-making in uncertain situations, and studying the Laffer Curve. The assignment provides a comprehensive overview of various economic concepts and their applications.

ECONOMIC PRINCIPLES
& DECISION MAKING

Executive summary
The report is about the Economic principle and decision making which refers to the
process of decision making which is major building blocking of modern economics and it also a
central concept around which course is built. There are many factors which can be considered for
the reason of increasing tariff rates and inflation rates. It is possible that certain change in income
can cause in many rates and factors of the economy among which major impact is on the tariff
rates and inflation rates by government.
There must be equal demand and supply for smooth flow in the market factors
Government will increase the tariff rates so that import goods become more expensive and not
affordable by the consumers so to avoid imports which further leads to import substitution.Cost
push inflation can be explained as the inflation which is caused by the rising price of the goods
and services whereas demand pull inflation is rise in price of the goods and services due to
excess of aggregate demand than aggregate supply
Openness to the trade and investment (Globalisation) has substantially contributed in the
national growth but to maintain the equality ad stability in demand and supply government of the
nation still impose high tariffs on the imported goods so that purchasing power can decrease and
supply can be matched with those of demand. Lower unemployment may bring huge inflation
which implies the trade off between import macroeconomics objectives. Increases income of the
consumer leads increase in the purchasing power of the consumer which further raises the
demand. The importance of the theory is to provide an economic justification for the political
popular policy of cutting tax rate
To undertake the situation and to reduce the purchasing power government will tend to
impose more taxes and tariffs for enhancing import substitution. There can be many factors
which can be used for controlling the inflation rates, increasing purchasing power and increasing
tariffs rates.
It is interpreted from the above report that average income of all the given consumers is
20712.67 and average annual income is 114.14 which have direct impact is on the increasing rate
of tariffs and inflation rates and R square showing the .918 value which ,means that there is
91.8% of relationship between the independent variable and dependent variables it also depicts
there is positive relationship between them.

TABLE OF CONTENTS
..........................................................................................................................................................2
INTRODUCTION...........................................................................................................................3
Impact of income on rising inflation rate and tariffs.............................................................3
The impact of the different predictions for income development, inflation rate development
and tariff rate development on the potential demand of Schmeckt Gut with a multiple
regression analysis using data..............................................................................................10
Recommendation..................................................................................................................15
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
Online...................................................................................................................................17

INTRODUCTION
The report is about the Economic principle and decision making which refers to the
process of decision making which is major building blocking of modern economics and it also a
central concept around which course is built. Various economic principles, and factors are used
for making the useful decision out if the given input.
The report will further explain about the different factors and the change in income which
directly affect the inflation rate, and taxes rates of economy through different concepts which
includes supply and demand, The fillips curve, aggregated demand and aggregated supply, The
Laffer curve which says about the different concepts through which the understanding regarding
the impact of income on inflation rates and tariffs rate can be made. This impact will be
explained with the help of using the regression analysis through which relationship can be
measured of dependent variable and independent variables.
Impact of income on rising inflation rate and tariffs
There are many factors which can be considered for the reason of increasing tariff rates
and inflation rates. This is not necessary that change in every factor will cause change in these
rates. Any one factor can also be a cause for the change in the above rates(Ball, 2017). Economy
is completely based on the different factors including foreign exchange, Gross domestic product,
national income, growth rate, inflation rate, tariff, excise etc. which somewhere affect the growth
and fall of the economy of the nation( Bartholomew and et.al., 2018). Every citizen is also
responsible for the change caused in the economy. To increase and improve the economic
condition it is necessary to keep all the rates stable and change according to the situations in
favourable manner.
It is possible that certain change in income can cause in many rates and factors of the
economy among which major impact is on the tariff rates and inflation rates by
government( Becker, 2017). This statement can be supported by the given description:
Aggregated demand and aggregated supply
Increase in consumer's income will give great rise in the purchasing power of the people that is
they want to purchase and consume more. Their increase income make it possible to afford the
goods and consume for their satisfaction. Increase in Purchasing power will further increase the
demand which may not be equal to the supply by the companies and organisation(Brim, 2017).

There must be equal demand and supply for smooth flow in the market factors. This situation
will influence the government of the nation to increase the inflation rates that is they will charge
higher price on consumer goods so that demand can tends to fall and can match given
supply( Emas, 2015).
Increase purchasing power will also lead to more import of the goods and services which
is not available in the particular country than people of the country will try to consume the
imported products which is downfall of the economic currency(Frederiks, Stenner and Hobman,
2015). To improve the situation government will also increase tariff rates that is the rate of
importing the goods. Government will increase the tariff rates so that import goods become more
expensive and not affordable by the consumers so to avoid imports which further leads to import
substitution.There can be two types of inflation which is categorised into cost push inflation and
demand pull inflation.
Cost push inflation can be explained as the inflation which is caused by the rising price of
the goods and services whereas demand pull inflation is rise in price of the goods and services
due to excess of aggregate demand than aggregate supply(Friedman, 2017). Rising prices
(Inflation) directly impacts the cost of living, cost of business, mortgages, government and
corporate bonds yield, and any other facet of the economy.

Increase in income also leads to increase in tariffs by the government as to control the situation
under the favour. This can be done by deceasing the level of income so that consumers do not
demand for the goods imported and supply can be matched with those to demand(Gentile and
et.al., 2016). Rising price of Tariffs reduce the availability of the goods and services to
consumers resulting in lower income, reduced employment, and also resulting in lower economic
output.
Openness to the trade and investment (Globalisation) has substantially contributed in the
national growth but to maintain the equality ad stability in demand and supply government of the
nation still impose high tariffs on the imported goods so that purchasing power can decrease and
supply can be matched with those of demand(Hansen, 2016). Tariffs generate the inflation and
have a negative impact on the real spending and growth of the consumer.
Illustration 1: Demand pull inflation
(Source: What are some of the factors that contribute to
a rise in inflation, 2015)

Aggregate demand and aggregate supply is completely affected with change in income and other
factors.
Supply and demand
Increase income of the consumer directly impacts on the demand of the consumer as their
purchasing power tends to increase which creates greater demand in the economy(Johnson,
2017). Supply is unable to meet the demand of the market which further leads in rise in inflation
rate and tariffs to make fall in the purchasing power of the consumers(Maduka and et.al., 2016).
Higher prices will result in lower demand and higher supply as higher price goods and services
were not be affordable by the consumers to consume and purchase the higher price goods that is
low purchasing power which ultimately helps in increasing the supply(Russell and Jackson,
2018). It means higher the price of the goods, higher the supply of the goods in the market.
Change in purchasing power can be result from price changes, income changes or any
currency fluctuations. Increase prices will make fall in the purchasing power and vice versa. The
Illustration 2: Impact of Tariffs on Income
(Source:The Theory of Tariffs and Quotas,2016)

income effect of the consumers results in spending more or less and does not indicate that they
will buy higher or low value goods( Bartholomew and et.al., 2018). There is a concept which is
called marginal propensity to consume this concept says about the consumers spent based on
their income. This is basically based on balancing the spending and savings of the customers.
Marginal propensity to consume generally included in larger theory of macroeconomics
which is also known as Keynesian economics(Smith and Winterhalder, 2017). The spending
proportion of their income is increase with the increase in their total income which have direct
impact on the inflation rate and tariff as a whole ultimately affect the supply of the goods and
services and higher price brings increase in supply as it lowers down the purchasing power of the
customers.
Phillips curve is basically an economic concept which states that inflation and unemployment
have stable and inverse relationship(Tan, Lee and Tan, 2016). This theory focuses on the concept
which says that the inflation in economy will lead to more jobs and lesser unemployment. This
inflation is somewhere beneficial for the people who is unemployed and needs job for the
satisfaction of their needs and wants.
The concept behind the Phillips curve stated that change in the unemployment have
predictable effect on price inflation. The inverse relationship between the unemployment and
inflation is clearly depicted downwards sloping concave curve(.Tsetsos and et.al., 2016). Where
inflation on Y axis and unemployment on x axis. Increasing inflation will depict the decreased
unemployment and vice versa.

(Source:Phillips Curve,2017)
The Philips curve trace the relationship between the pay growth (Income rise) on one
hand and balance of labour market supply and demand(represented by unemployment)
on the other. It is considered to be the stable part of the macroeconomic theory(Maduka and
et.al., 2016). Once the unemployment falls below the estimate equilibrium rate than it will leads
to accelerator in wage inflation through higher consumer prices.
Lower unemployment may bring huge inflation which implies the trade off between
import macroeconomics objectives. Increases income of the consumer leads increase in the
purchasing power of the consumer which further raises the demand(Frederiks, Stenner and
Hobman, 2015). For matching the demand with given supply government impose heavy taxation
on imports or tariffs and may increase the price of goods and services. Higher prices goods and
services will lead to increase the supply of the goods and tends top decreasing demand which is
complete cycle and run according to the situation changes(Tsetsos and et.al., 2016).
The Laffer curve is basically a theory developed by the supply side economist which
shows the relationship between the tax rates and the assumption of the tax revenue which is
collected by the governments. The shape of the curve is uncertain. It is also the matter of dispute
among many economists(Gentile and et.al., 2016). The curve states that if the tax rates increase
after the certain level than it leads to fall in the tax revenue of the government as after the certain
Illustration 3: Phillips Curve

point, higher tax imposed will discourage the people to work and purchase the goods which
ultimately leads to fall in the demand of the goods and tax revenue will decrease.
The importance of the theory is to provide an economic justification for the political
popular policy of cutting tax rate(Smith and Winterhalder, 2017). The laffer curve also stated
that cutting taxes leads to high tax revenues. As it starts from the premise that if the tax rates are
0% than government will be earning no revue or 0 revenue. If tax rates are 100% than also
government will be earning No or 0 revenue because there is no point or chance of working by
the people of the nation. If the tax rates are very high and then they get curt, it can create an
incentive for the business to expand their business and capturer greater share of the market which
helps them in achieving the organisation goal ad it intends the Poole to work longer so that they
can earn and can raise their standard of life by satisfying their needs and wants(Russell and
Jackson, 2018). This ultimately boost the economic growth and also to higher tax revenue for the
government, higher income tax and corporation tax clouding VAT as well.

(Source:The Laffer Curve,2019)
The impact of the different predictions for income development, inflation rate development and
tariff rate development on the potential demand of Schmeckt Gut with a multiple
regression analysis using data
Raw data: The below given is the data of different elements which is the total demand,
inflation rate, tariff rates and supply by the companies in the industries. it also reflects the
income of the consumers.
Annual average
demand of energy
bars per person
Average income per
person
Tariff rate on
imports of energy
bars
Number of stores
where energy bars
are offered
106 14500 5 15
Illustration 4: The Laffer curve

90 15000 5 15
93 16200 5 15
92 16700 5 15
91 17500 5 15
110 18282 5 16
109 19000 5 16
122 19508 5 16
82 20000 10 16
84 20276 10 16
102 20702 10 17
92 21550 10 17
115 22197 10 20
112 22330 10 20
109 22754 10 20
148 23619 7.5 20
143 23855 7.5 20
139 24452 7.5 20
158 24941 7.5 23
142 25600 7.5 23
158 26000 7.5 23
Descriptive Statistics
Mean Std. Deviation N
Average income per person 20712.67 3469.305 21
Annual average demand of energy
bars per person 114.14 24.555 21
Tariff rate on imports of energy bars 7.381 2.1616 21
Number of stores where energy bars
are offered 18.00 2.881 21

It can be interpreted from the above table that average income of all the given consumers
is 20712.67 and average annual income is 114.14 which have direct impact is on the increasing
rate of tariffs and inflation rates.
Correlations
Average
income per
person
Annual
average
demand of
energy bars
per person
Tariff rate
on imports
of energy
bars
Number of
stores where
energy bars
are offered
Pearson
Correlation
Average income per
person 1.000 .761 .564 .926
Annual average
demand of energy
bars per person
.761 1.000 -.007 .847
Tariff rate on imports
of energy bars .564 -.007 1.000 .422
Number of stores
where energy bars
are offered
.926 .847 .422 1.000
Sig. (1-tailed)
Average income per
person . .000 .004 .000
Annual average
demand of energy
bars per person
.000 . .488 .000
Tariff rate on imports
of energy bars .004 .488 . .029
Number of stores
where energy bars
are offered
.000 .000 .029 .
N Average income per
person 21 21 21 21
Annual average
demand of energy
bars per person
21 21 21 21
Tariff rate on imports
of energy bars
21 21 21 21

Number of stores
where energy bars
are offered
21 21 21 21
From the above table it can be interpreted that there can be positive or negative
relationship between the variables. Variables are also categorised into dependent variable and
independent variables. From the table explained above it depict that mostly the relationship
between the three variable are positive except some. In the first case there is positive relationship
between algal the variables and income of the people rises will leas to increase in the purchasing
power of the consumers. This enforces the government to increase tariffs rates so to encourage
the import substitution, In addition to this they also focus on increasing the prices of the goods
and services which resulted in increasing inflation rate in the economy of the give nation.
Model Summary
Model R R
Square
Adjusted R
Square
Std. Error of
the Estimate
Change Statistics
R Square
Change
F
Change
df1 df2 Sig. F
Change
1 .958a .918 .903 1079.810 .918 63.151 3 17 .000
a. Predictors: (Constant), Number of stores where energy bars are offered, Tariff rate on imports of energy bars,
Annual average demand of energy bars per person
From the above table, Interpretation can be made that R square showing the .918 value
which ,means that there is 91.8% of relationship between the independent variable and
dependent variables it also depicts there is positive relationship between them. The procreation
varies from +1 to -1 that is the relationship lies in between this range. The above model summary
showing t outcome of .918 that is it is more than -1 and less than +1. This value lies between this
range showing the positive and great relationship between the variable which is income, tariffs
and inflation rates.
ANOVAa
Model Sum of Squares df Mean Square F Sig.
1 Regression 220899674.966 3 73633224.989 63.151 .000b
Residual 19821819.701 17 1165989.394

Total 240721494.667 20
a. Dependent Variable: Average income per person
b. Predictors: (Constant), Number of stores where energy bars are offered, Tariff rate on
imports of energy bars, Annual average demand of energy bars per person
From the above table it can be interpreted that the value showing 0 which is less than
0.05 showing the positive relationship and alternative hypothesis between the dependent and
independent variables. As the value of the correlation always lies between the range of +1 and -1.
If the value is more than 0.05 than it shows the negative relationship between the variables.
Coefficientsa
Model Unstandardized
Coefficients
Standardi
zed
Coefficie
nts
t Sig. 95.0% Confidence
Interval for B
B Std.
Error
Beta Lower
Bound
Upper
Bound
1
(Constant) 533.340 1554.50
7 .343 .736 -
2746.383 3813.063
Annual average
demand of energy
bars per person
62.792 28.129 .444 2.232 .039 3.446 122.139
Tariff rate on imports
of energy bars 654.518 187.450 .408 3.492 .003 259.032 1050.003
Number of stores
where energy bars
are offered
454.504 264.370 .377 1.719 .104 -103.267 1012.275
a. Dependent Variable: Average income per person
Coefficients are basically constant quality places before and multiplying the variable sin
an algebraic expression. From the above table it can be interpreted that there is positive
relationship between the income variable and tariff and inflation rate variables. As increase in
income will leads to increase in the tariff rates and inflation rates as because of the increasing
purchasing power of the consumers.

To undertake the situation and to reduce the purchasing power government will tend to
impose more taxes and tariffs for enhancing import substitution. The table also depicts that
Annual average demand of energy bar persons, tariffs rates on import of the energy bars from
industria and the numbers of stores where energy bars are offered that is supply have somewhere
direct and positive relationship which implies that increase in income we'll also lead to increase
in the tariffs rates and inflation rates of the economy of the nation.
Recommendation
There can be many factors which can be used for controlling the inflation rates,
increasing purchasing power and increasing tariffs rates. Researcher will recommend that one of
the factor which can be take into consideration from many is to increase the bank rates in saving
accounts so that customers Wil attract more towards the banks for saving and spend less which
resulting in decreasing purchasing power of the consumers and through this inflation rate can
tend to be stable and also government will not charge the higher rates on imports which decrease
the tariffs rates and benefit the overall economy in all way and it also changes the relationship of
the variables accordingly.
CONCLUSION
From the above report it can b concluded that there is great impact of change in income
on the inflation rates and tariffs. As increase in income can directly affects the rise in the
inflation rate which is the reason of higher demand which ultimately leads in higher prices of the
goods and services. The increased income also have impact to the increasing tariffs as to
decrease the purchasing power of the consumers. The relationship between different variable is
explained using regression analysis to make the clear understanding regarding the dependent
variable s ad independent variables.
The report also conclude about the different interpretations which explained the
relationship between the variables and recommendation which can be used by the directors for
their further predictions and decision making It can be interpreted from the above report that
average income of all the given consumers is 20712.67 and average annual income is 114.14
which have direct impact is on the increasing rate of tariffs and inflation rates and R square
showing the .918 value which ,means that there is 91.8% of relationship between the

independent variable and dependent variables it also depicts there is positive relationship
between them.

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