Read the news clip, then answer the following questions. inflation when it discusses The news clip refers to rising production costs. "Rising labour productivity" can neutralize the effect on the inflation rate of "higher input costs" because O A. cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth OB. demand-pull; it increases aggregate demand OC. demand-pull; it increases short-run aggregate supply D. cost-push; it increases aggregate demand by more than it in aggregate supply Tight Money Won't Slay Food, Energy Inflation It's important to differentiate between a general increase in prices a situation in which aggregate demand exceeds their aggregate supply and a relative price shock. For example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So far, global competition has made that difficult for companies, while higher input costs have largely been neutralized by rising labour productivity. Since 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests gambling that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers don't believe price increases will slow, growing inflation expectations may become self-fulfilling. Source: Bloomberg, May 9, 2008
Read the news clip, then answer the following questions. inflation when it discusses The news clip refers to rising production costs. "Rising labour productivity" can neutralize the effect on the inflation rate of "higher input costs" because O A. cost-push; it increases short-run aggregate supply and long-run aggregate supply with no slowdown in aggregate demand growth OB. demand-pull; it increases aggregate demand OC. demand-pull; it increases short-run aggregate supply D. cost-push; it increases aggregate demand by more than it in aggregate supply Tight Money Won't Slay Food, Energy Inflation It's important to differentiate between a general increase in prices a situation in which aggregate demand exceeds their aggregate supply and a relative price shock. For example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So far, global competition has made that difficult for companies, while higher input costs have largely been neutralized by rising labour productivity. Since 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests gambling that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers don't believe price increases will slow, growing inflation expectations may become self-fulfilling. Source: Bloomberg, May 9, 2008
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Read the news clip, then answer the following questions.
inflation when it discusses
The news clip refers to
rising production costs.
"Rising labour productivity" can neutralize the effect on the
inflation rate of "higher input costs" because
A. cost-push;
it increases short-run aggregate supply and long-run
aggregate supply with no slowdown in aggregate
demand growth
OB. demand-pull;
it increases aggregate demand
OC. demand-pull;
it increases short-run aggregate supply
D. cost-push;
it increases aggregate demand by more than it
increases short-run aggregate supply
Tight Money Won't Slay Food, Energy Inflation
It's important to differentiate between a general increase in
prices a situation in which aggregate demand exceeds their
aggregate supply and a relative price shock. For example, a
specific shock to energy prices can become generalized if
producers are able to pass on the higher costs. So far, global
competition has made that difficult for companies, while higher
input costs have largely been neutralized by rising labour
productivity. Since 2003, core inflation has averaged less than 2
percent a year in the 30 major economies. History also
suggests gambling that slowing growth will shackle core
inflation is a winning wager. The risk is that if U.S.
consumers don't believe price increases will slow, growing
inflation expectations may become self-fulfilling.
Source: Bloomberg, May 9, 2008
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