Question

Question one a Critically analyse how an increase in wages can lead to cost-push inflation as well as demand-pull inflation (10 MARKS]. Question one B The per capita income in Ghana and Nigeria for the year 2019 are 4605 and 5927 dollars respectively. Discuss the flaws of using these figures to suggests that the welfare of people living in Nigeria is better than those living in Ghana. [10 MARKS]

Answer 1

QUESTION-FIRST

• When the wages of workers increase then the firm would have to pay more to get the work done which they were able to get done at lower price earlier.this cost would be ultimately borne by the final consumer of the product,which implies that firm would have to increase the price of the goods to maintain the profit margin.this is known as cost push inflation.
• when the monetary income of the workers would be increased they would demand more goods and due to this the inflation would increase.the purchasing price of the currency would decline and to buy one unit of good more money would be needed,this is known as demand pull inflation,because due to increase in demand the prices have been increased.

QUESTION-SECOND

the second question reveals only monetary term of Ghana and Nigeria.per capita income is mere an average of national income divided in the population of the country.on the basis of PCI(per capita income) assuming the higher PCI country is better,this can't be justified due to the following reasons-

• it might be possible that the higher PCI country(Nigeria) is facing higher rate of inflation due to this there would be relatively higher inflation persist and due to this the country's currency purchasing power is lower.
• it may also be possible the Ghana has relatively higher real income than Nigeria which means more quantity of goods can be purchase with less amount of money.

above two possible reasons defy the justification given in the statement.