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1. Our current inflation rate in the United States is 2.5%. Explain as clearly as possible...

1. Our current inflation rate in the United States is 2.5%. Explain as clearly as possible what that number means, how it is calculated, and how it compares to our goal for inflation.

2. Explain why economists use models and what the AD/AS model helps us understand.

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1 The number means that in economy average prices have risen by 2.5% compared to previous year. It is calculated by comparing prices of representative basket of goods with the previous year. Our goal is 2%. So inflation is higher than necessary

2 To simplify complex economic reality of the world. AD /AS model helps us to understand changes in inflation rate and national income or output. It also explains the underlying causes and adjustments from short run to longrun or from longrun to shortrun

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