Inflation and Government Economic Policies | M3:A2 | 5/1/2013 | |
1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).
What are the causes of inflation? Inflation has a variety of possible causes, but they are between the Keynesian and monetarist theories, ranging between demand-pull, cost-push, built-in inflation, and the quantity model. With demand-pull, inflation is caused by aggregate demand being more than supply. With cost-push, inflation is caused when manufacturers and businesses raise prices due to shortages in order to balance increases in production costs. With built-in inflation, inflation occurs due to prior increases in prices …show more content…
5. What do the measures above tell us about consumer behavior? The measure above tells us that regardless of changes in the economy, consumer continue to spend on Food and Housing.
Have incomes changed enough to offset the inflation since 2000? Income has not changed enough to offset the inflation since 2000, because as income rises consumers lose their purchasing power, meaning that as income raises so does prices which cause a rise in inflation and since a consumer dollar is worth less than it was before, it will be harder for that consumer to purchase more items.
What can we predict about future inflation? We can predict that inflation will cause the price of goods and services to increase, which will cause wages to increase as well. Meaning that inflation will also cause our money to be worth less than it was before, which basically means that what may cost $10 dollars today will cost $15 tomorrow. 6. What are the implications of these measures for government economic policies? The implications of these measures for government economic policies is to be able to track changes over a period of time relating to prices of goods and services and spending habits for consumers. These measures allow economic policy officials to determine or adjust