IB Econ Inflation - Causes, Consequences, and Evaluation

Organised Post Index

Causes of Inflation

• Why Everything Costs More Than It Did Last Tuesday

Why does Cadbury's Dairy Milk Whole Nut cost more now than in 2007? Inflation explained for IB Economics students - stories, CPI stats, real-world examples, and memes included.

IB Economics inflation | Consumer Price Index | Causes of inflation | Demand-pull inflation | Cost-push inflation | CPI limitations | Inflation effects

Deflation

• When Prices Drop but So Does Your Mood: The Devious Truth About Deflation

Think falling prices sound amazing? Learn why deflation might actually wreck the economy and how to nail this tricky concept in your IB Economics exams!

Deflation explained simply | Benign vs malign deflation | Deflation vs disinflation | Deflation IB economics | Phillips curve explained | Deflation examples

Government Response

• When Governments Max Out Their Credit Cards: The Wild World of National Debt

Think government debt is just boring numbers? Learn why countries maxing out their national credit cards matters to YOU and how to nail this topic in your IB Economics exams!

Government debt explained simply | Budget deficit vs government debt | Sustainable debt level | Debt-to-GDP ratio | Government debt examples | IB economics debt

Effects and Stakeholder Impact

• Economic Tug-of-War: When Macro Goals Clash

Discover the four major trade-offs in macroeconomics with real-world examples. Perfect for IB Economics students navigating conflicting policy objectives!

Macroeconomic objectives | Economic trade-offs | Phillips curve | Inflation-unemployment relationship | Sustainable economic growth | Income inequality | IB Economics evaluation | Macroeconomic policy conflicts

Application & Evaluation

Japan’s Struggle with Deflation

Japan’s economy has faced persistent deflationary pressures since the 1990s. Despite low interest rates and massive government spending, consumer prices remained stagnant or fell, leading to reduced business investment and lower consumer confidence.

Key takeaway: Deflation can be just as harmful as inflation, especially when expectations become entrenched - people delay spending, which worsens the slowdown.

Economic Tools Used:
– Near-zero (or negative) interest rates
– Quantitative easing by the Bank of Japan
– Fiscal stimulus packages

IB Application: Use this example to evaluate the limits of monetary policy when confidence is low and liquidity traps emerge.

UK Inflation and the Role of the Bank of England

The UK has seen inflation rise sharply at times, particularly in the aftermath of the 2008 financial crisis and more recently during the global supply chain crunch (2021–2023). The Bank of England uses inflation targeting, aiming to keep inflation at 2%.

When inflation rises above this, the BoE typically raises interest rates to reduce spending and borrowing.

Real-World Example:
– In 2022–2023, UK inflation peaked above 10%, driven by energy prices and supply shocks. The BoE raised the base rate repeatedly in response.

IB Application: This is a classic example of monetary policy in action, and you can use it to discuss time lags, cost-push inflation, and the trade-off between inflation and growth.

Turkey’s Inflation Spiral (Post-2018)

Since 2018, Turkey has experienced chronic high and volatile inflation, often exceeding 30–40% per year. Unorthodox monetary policy - particularly lowering interest rates in the face of rising inflation - damaged investor confidence and led to currency depreciation.

Key Features:
– Political interference in central bank decisions
– Weak Turkish lira = imported inflation (especially energy and food)
– Wage-price spirals and rising expectations

IB Application: A strong case study for cost-push inflation, currency depreciation, and why central bank independence matters.

Lebanon – Inflation and Economic Collapse

In the wake of a full financial crisis (2019–2023), Lebanon experienced triple-digit inflation due to a collapsing banking system, political instability, and currency devaluation. The Lebanese pound lost over 90% of its value, and basic imports became unaffordable for much of the population.

Key Features:
– Hyperinflation without war
– Currency collapse + black market rates
– Severe poverty and economic contraction

IB Application: Use this to illustrate extreme inflation linked to systemic failure, not just monetary factors - great for Paper 2 evaluations on policy failure and instability.

For access to all key diagrams, model answers, and exam strategies,

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