Define the term inflation.

Define the term subsidy.

Calculate the annual inflation rate for 2016 (CPI 2015 = 100.22; CPI 2016 = 101.56). Show working.

Between 2017 (CPI 102.99) and 2019 (CPI 105.12), calculate the approximate percentage change in the price level. Show working.

Using an AD/AS diagram, explain how an increase in world energy prices is likely to affect South Korea’s price level and real GDP in the short run.

Using an international trade diagram, explain how a fall in the world price of an imported staple food affects domestic consumer surplus and producer surplus.

Using an exchange-rate diagram, explain how a rise in foreign income growth could affect demand for South Korean exports and the value of the won in a floating system.

Using a long-run AS (LRAS) / AD diagram, explain how government training subsidies for workers can affect potential output and long-run economic growth.

Using information from the extracts and data, discuss the likely consequences for the South Korean economy of the declining real GDP growth shown in the Figure above, commenting on at least two policy options to support growth while maintaining low and stable inflation.