Use a simple model to show that the control of inflation at a low level requires precommitment by the policymaker. What kinds of pre-commitment are possible, and what kinds have been most used in the last two decades?

Q: Which perspective is better suited to handling the inflation we face today? Keynesian or…

A: Finding a balance between Keynesian and Neoclassical models is like to riding two horses at the same…

Q: Describe the complexity of multiple inflation rates?

A: Inflation is an economic phenomenon of a sustained increase in the price level of goods and services…

Q: In detail, explain how high inflation can lead to a recession in several ways.

A: High inflation refers to a sustained increase in the general price level of goods and services…

Q: The view being reported in the extract of how the European Central Bank will deal with inflation is

A: European Central Bank (ECB) main purpose is providing the stable prices stable by making ensure that…

Q: Which of the following is a potential benefit of inflation? Higher unemployment Higher prices Less…

A: Inflation refers to the continuous increase in general price level.

Q: In what way can inflation distort purchasing power over time for individuals?

A: The economic growth of an economy is generally measured as the growth rate of GDP over time. GDP is…

Q: What could be a real world example that explains the difference between inflation and deflation?

A: Inflation refers to a rise in the general price level in an economy whereas deflation refers to a…

Q: What costs are associated with imperfectly anticipated inflation? Discuss them carefully. Who loses,…

A: The percentage rise in the price level in a given period of time that is expected by participants in…

Q: Why might the Coronavirus pandemic cause inflation?

A: Inflation is characterized by a situation when there is a continuous rise in prices, indicating a…

Q: How does each policy handle the two major macroeconomic failures of unemployment and inflation

A: Considering macroeconomics, it talks about the economy as a whole and not an individual. The major…

Q: What could be a real world example that explains the difference between creeping inflation,…

A: Creeping inflation can be controlled,it is under 5%. Galloping inflation can also be controlled,it…

Q: Why do workers, firms, banks and investors in macroeconomics care about the future rate of…

A: Inflation refers to persistent rise in prices. Inflation erodes the purchasing power. Due to…

Q: Explain the factors that affect inflation in the short and medium term.

A: Economics as a subject deals with the allocation of scarce resources among humans with unlimited…

Q: Which one is better at dealing with inflation: demand-side or supply side policies?

A: The demand-side(D) and supply-side(S) policies are policies used by the government and the monetary…

Q: define and explain the importance of inflation targeting

A: Inflation means rise in the general prices in the economy that is for selected bundle of essential…

Q: Which one of the following will help to keep inflation down?       a central bank that supports…

A: Inflation is the continuous increase in the price level in an economy. To control inflation in an…

Q: Critically examine tools for measuring inflation

A: Inflation: A rise in the general price level of goods and services over a specified period of time…

Q: Can inflation can only be controlled by increasing productivity?

A: Inflation refers to the continuous increase in general price level in the economy.

Q: Does inflation impose costs on the economy? Explain the problems with anticipated inflation and…

A: Inflation: It is the continuous increase in the price of the products.  Anticipated inflation: When…

Q: “As long as we do not mind having high inflation, we can achieve as low a level of unemployment as…

A: Monetary policy improves the money movement and purchasing power of the common people. Hence, demand…

Q: flation necessarily always a bad thing?

A: Inflation refers to the increase in the general price level or decrease in the purchasing power of…

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.