Question

Question #18 & #19 & 28

di sonie 9 1xon orlh 0SI o d vil al ,169y does gvil vd di sts7 noitsllni s l 16. What has been a typical range of inflation. in the of goods and U.S. economy in the last decade or so? 17. Over the last century, during what periods was the U.S. inflation rate highest and lowest? s to measure Dods? ice level and 18. What is deflation? 19. Identify several parties likely to be helped and hurt by inflation. we calculate goods? 20. What is indexing? " arise if we 21. Name several forms of indexing in the private and public sector. ed basket of Loas STIONS re imperfect 27. Describe a situation, either a government policy situation, an economic problem, or a private sector situation, where using the GDP deflator to convert from nominal to real would be more appropriate than using the inflation rising price the CPI. ecent years, sting Social CPI, Social at is their 28. Why do you think the U.S. experience with inflation over the last 50 years has been so much milder than in many other countries? it? 29. If, over time, wages and salaries on average rise at least as fast as inflation, why do people worry about how inflation affects incomes? ate measure icians who ng the basic now they w will this bias and Who in an economy is the big winner from 30. inflation? 31. If a government gains from unexpected inflation when it borrows, why would it choose to offer indexed bonds? 32. Do you think perfect indexing is possible? Why or why not? nent policy vate sector om nominal g the GDP

Answer 1

18. When the rate of increase in prices falls below 0% or becomes negative it is known as deflation.

19. Inflation benefits some while hurt others.

The parties that are benefitted as a result of inflation are

• the borrower who pays a fixed interest rate for the amount he borrowed.

The parties that are hurt by inflation are

• those who hold a huge amount of cash or financial assets that yield nominal returns less than that of the rate of inflation.
• wage earners whose sticky wages are very difficult to get adjusted with the inflation.
• the retired people whose pensions are a fixed amount do not get adjusted with inflation.
• a lender who receives a fixed interest rate.
• businessmen who get confused by inflation as it causes an increase in the prices of commodities.

28. The U. S experience of inflation was milder than many other countries of the world. In the U. S , the inflation rate for the past two decades hovered around 2% to 4%. The period when the country experienced a high inflation rate in the past 50 years was during the 1970s . During this period not only the U.S but also other countries also suffered from inflation. But then onwards it was stable.

In 1990s many countries like China and Russia hyperinflation . But this scebario was not visible in the U.S. . Even today the inflation rate in the U. S is much low in comparison with other countries.

Answer 2

Describe a situation either a government policy situation an economic problem, or private sector situation, where using the cpi to convert from nominal to real would be more appropriate than using the GDP deflator