NUR NABILAH BINTI SHARUDDIN (2019896982) – ABA2438A

ANSWER FOR CASE STUDY 2

A) Define inflation and explain the importance of the Consumer Price Index.
Inflation is a sustained rise in overall price levels. Moderate inflation is associated with
economic growth, while high inflation can signal an overheated economy. If economic
growth accelerates rapidly, demand grows even faster and producers continually raise prices.
The CPI measures the price of consumer goods and how they're trending. It's a tool for
measuring how the economy as a whole is faring when it comes to inflation or deflation.
When planning how you spend or save your money, the CPI can influence your decisions.

B) Briefly explain what would happen to the value of money when the price level increases.
When the price level increases the value of money goes down and vis versa. Hence, the
relationship between an economy's price level and money's value is inverse.

C) Identify and discuss the types of inflation that may occur when imported raw material
and fuel prices increase.
Cost-push inflation (also known as wage-push inflation) occurs when overall prices increase
(inflation) due to increases in the cost of wages and raw materials.

D) Government can obtain revenue from many sources. Explain the important source of
government revenue mentioned in the above article.
Governments generate revenue by collecting income taxes, payroll taxes, sales taxes, property
taxes, and social insurance taxes. Revenue is also generated from income on assets and
transfer receipts from businesses and individuals. The sources of revenues are individual
income taxes and payroll taxes followed by corporate income taxes. Absent changes in tax
laws, the total amount of revenues generally follows the path of the economy.

E) Discuss (2) monetary tools Bank Negara Malaysia can use to control the effect of
inflation.
BNM influences the domestic interest rates via the policy interest rate, the Overnight Policy
Rate (OPR). The MPC of BNM decides whether the OPR is at an appropriate level to
maintain price stability while supporting economic activity. The OPR serves as the target rate
for the day-to-day liquidity operations of BNM.