Which of the following could lead to demand-pull inflation? An view the full answer. How does inflation affect a country's well-being? Of course, if the GDP falls by 15% we could see deflation and if it only falls by 5% we could see inflation. 03-05-2020, 06:28 PM Chas863 : 942 posts, read 414,207 times Reputation: 3336. In the following chart, we can see the FED’s “Total Assets” where we can see the three previous phases of Quantitative Easing (QE) where the FED massively increased the money supply to fight the deflationary forces on the 2008-2009 crash. Inflation is the rate at which the prices for goods and services increase. Which of the following scenarios could lead to inflation? The Fed would now work harder to stamp out as much unemployment as it could and see where inflation landed. While you might not like that as a consumer, moderate price growth is a sign of a healthy, growing economy. Moderate to high inflation is popular among consumers. Our findings led us to ask whether rapid money supply growth would at least lead to moderate inflation. The authors find that "higher prices lead to higher wage growth". The projected high GDP growth and investments required to achieve it will have an impact on foreign exchange demand and could lead to a further depreciation of the national currency (ibid). Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. As inflation expectations adjust, the short run Phillips curve shifts right. After 1971, the instability of the short-run Phillips curve became more evident and the US economy was hit by several supply shocks, so the link between business cycles and inflation loosened. To analyze this, we defined moderate inflation as CPI increases of 2 percent or more for five consecutive years (this of course, also includes cases of high inflation, but for the purposes of this paper is simply labeled “moderate”). However, a moderate level of inflation is required in the economy to ensure that production is promoted. As an indication only, one could consider an inflation as moderate when it ranges from 5% to 25-30%. c. A 0% inflation target could lead to deflation. Food price inflation meanwhile increased to 2.4% in March, from 2% a month earlier. The situation, Powell said, "can lead to an unwelcome fall in longer-term inflation expectations, which, in turn, can pull actual inflation even lower, resulting in … For some countries, the higher part of this range is already "high inflation". This situation is not desirable because of the following reasons: No.1) real view the full answer. I am thinking moderate Inflation, in durables. Concerns are mounting that the global recession triggered by the coronavirus pandemic could lead … However, containing inflation to a single digit is a huge challenge for monetary policy. Beating moderate inflation is unlikely to be easy - the gap between current inflation and the 2018 target is some ten percentage points. To analyze this, we defined moderate inflation as CPI increases of 2 percent or more for five consecutive years (this of course, also includes cases of high inflation, but for the purposes of this paper is simply labeled “moderate”). an increase in the money wage rate; an increase in the quantity of money; a decrease in exports; an increase in oil prices; Expert Answer . But they tend to be similar: (source.) The United States suffered from high inflation and unemployment in the 1970s, and there are many theories about what caused it. Expert Answer 100% (4 ratings) Answer: c There may be the problem of deflation or decreasing the price level. Who measures Inflation in India? What are some examples of high and low inflation? Public Pastes. If people believe that the central bank will reach its inflation target, they start to act accordingly. B ) An increase in the quantity of money . Moderate inflation can be differently defined around the world, given the different inflation histories. Inflation can be reduced by policies that slow down the growth of AD and/or boost the rate of growth of aggregate supply (AS) Supply side policies seek to increase productivity, competition and innovation – all of which can maintain lower prices. But once the effects of the pandemic begin to wane, there are fears in some quarters that the massive government spending could lead to inflation. In South Africa, inflation was 5.3%, Argentina 31%, Turkey 16% and Ethiopia 9%. Advantages of Inflation * Deflation is potentially very damaging to the economy and can lead to lower consumer spending and lower growth. Quote: Originally Posted by leastprime. The Great Inflation of the 1970s, in truth, was a convergence of numerous factors, including years of bad economic policies, an oil embargo, and the untethering of the dollar to the gold standard. Policy makers need to be willing to tighten macro policies to the point of significantly slowing aggregate demand, even if at the cost of risking a recession, to achieve the targets set by the central bank, even more so if inflationary expectations remain high. Suppose a central bank takes actions that will lead to a higher inflation rate. C ) The U.S. has had mostly low inflation since the double-digit increases of the 1970s. This could ultimately lead to a deceleration in economic growth. How does inflation affect a country's well-being? Since inflation in many instances is a barometer for domestic demand pressures, one plausible reason for Bangladesh’s differential inflation performance could be that its economy has so far been impacted marginally by the global meltdown, in comparison to China and India. The optimum inflation rate for long-term economic growth is between 2 and 4%. That would mean a confusing and uncertain outcome. In 2018, the average rate of consumer price inflation in the world economy was 3.8% (according to the IMF’s World Economic Outlook). Inflation Reality #1: History Shows High Levels of Debt Lead To Inflation. The inflation target would still hold, but … JMO, YourMoneyMattersMayVary, Shop-till-you-drop but nowhere to put it or show it off. a. shift in aggregate demand so far to the right that it causes high inflation b. combination of less foreign capital and banks that are bankrupt c. a series of large budget deficits d. moderate increase in a trade deficit and a moderate appreciation of the exchange rate. It's called the "real wage". A ) An increase in the money wage rate . Then, in the short run, unemployment . Previous question Next question Get more help from Chegg. Harder for prices and wages to adjust. Professor Richard Warr published the following article in The Conversation. A moderate increase in a budget deficit that leads to a _____ is not necessarily a cause for concern. falls. What are some examples of high and low inflation? So "price inflation" and "wage inflation" aren't exactly the same. But I am also thinking moderate deflation in consumables. Incorrect Answer(s) The supply of money decreases. attempt on the part of the government to collect a given inflation tax revenue will bring forth an increase in the tax (inflation) rate; (iii) inflation might cause budget deficits to rise (revenues to fall) due to the Tanzi effect1, and the pursuing monetization could lead to even higher rates of inflation … If you're seeing this message, it means we're having trouble loading external resources on our website. In these countries, the annual rate of inflation was significantly higher than the world averaged and in countries such as the UK and the USA where inflation is around 2 percent. Correct Answer(s) The quantity of goods and services in the economy increases by 2% while the supply of money increases by 4%. Demand pull inflation is that which is caused by changes in variables related to aggregate demand. In some cases, inflation targeting measured by credible entities may be self-fulfilling. It's one of the key measures of financial wellbeing because it affects what consumers can buy for their money. Background on Inflation. This statement makes sense on the face of it, but seminal research has been done that confirms a country cannot escape high inflation when it carries oversized debt levels. Economists have a term for how much you can buy with your wages. I … In a healthy economy, prices tend to go up – a process called inflation. RBI hiked interest rates by 350 basis points between March 2010 and October 2011 to tame inflation, which was above 9 per cent for most of last two years. The public, however, is slow to adjust its expectation of inflation. Inflation affects economies in various positive and negative ways. Low inflation can be characterized from 1-2% to 5%. Of course, wages are affected by other things besides inflation - for example, labor's share of total income. A normal period of economic growth would typically give a moderate rate of inflation (2%). And, historically at least, wages tend to go up at about the same pace during periods of inflation. The population of a nation decreases. The government prints $500 million in new currency to pay off foreign debts. If inflation has fallen to 0%, it suggests that there is intense price pressure to encourage spending and the recovery is very fragile. If prices keep rising, we get what many economists and politicians dread – inflation. Answer to Which of the following could lead to demand- pull inflation ? As the pandemic of CoVid19 takes hold, will USA see Inflation or Deflation? lead for moneyover inflation(i.e., type 2 inflationpersistence) exists in the pre-Great Inflation years 1953–64, a period that Erceg and Levin characterize as without type 1 inflation persistence. inflation targets, and at the economy’s monetisation rate. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth. There are several reasons for this: First, deflation is economically devastating, and once in the deflation trap it can be very hard to get out of it. Our findings led us to ask whether rapid money supply growth would at least lead to moderate inflation. We want more spending, but not too much, because all that spending could lead us toward higher prices. Around zero there is no inflation (price stability). Previous question Next question Get more help from Chegg. Though moderate inflation is healthy for the economy, and therefore benefits most investment portfolios, an unanticipated jump in inflation above expected levels could have … RAW Paste Data . Inflation is measured by a central government authority, which is in charge of adopting measures to ensure the smooth running of the economy. ( source. zero there is no inflation ( price stability ) 942 posts, 414,207! Part of this range is already `` high inflation and the 2018 target is some ten percentage.. 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