Question

4. Macroeconomists often say, “The reason we have inflation (rising price level) is that everyone expects inflation." Using the supply and demand model, show what happens to price and quantity when both consumers and producers expect the price of a particular good to increase in the future. (5 points)

Answer 1

When both consumer & prodence ut expect to increase in the price in future, Consumer demand for that partice good will & en present, Producer er supply for good will t. in present in the hope that they will get more prices in future. (1) As we can see ils this diagram, due do price & expectation , supplier & supply & consumer a demand, due to which perice actually T. But the quantity & which is in equillibrium will & ord or remains same is uncertain and depend upon ose new much supply & or demand 1

In this diagram (1) supply and demand changes at some peoproportion, so quantity remains same ns BP ponse (2 ) atah atato In diagram (2) change in demand than change es supply , price quantity also r. is a greater Band pah cate of Yo (3) com Q Ion inis diagram, change ies supply is greater than change en demand, so. price & but quantity .