Question

In 1989-90 inflation in Poland reached over 600%. How did this high inflation affect market adjustments towards equilibrium quantity and price? O Markets could not adjust to equilibrium. Markets adjusted to equilibrium more erratically and slowly. Markets adjusted to equilibrium faster than before.

Answer 1

Q1)

Answer: 3^rd option; faster

Inflation is very high here. It is good sometimes, because it increases spending attitude of consumers on the fear of more increasing price in future. The effect of which is the increasing GDP and stimulating the economy faster. Equilibrium price and quantity could be restored quickly.

Q2)

Answer: 2^nd option; transfer payments

Since the payment is non-adjustable, such payment should not be increased as inflation increases. It decreases relative income of those holders.

The 1^st option is not correct, since the contribution is fixed in the retirement plan.

The 3^rd option is not correct, since the repayment is fixed and inflation has no effect on it.