Question

Discuss the following statement: "Expected higher inflation causes higher inflation."

Discuss the following statement: "Expected higher inflation causes higher inflation."

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #2

Answer: Lucas was the first economist who gave emphasize on rational expectations. Since, individuaIs are expecting higher rate of inflation given that price level is increasing over the past years, hence they will ask for higher wages for their work. Ultimately, firms will pay higher wages to incentivize its employees to work efficiently. It incurs higher cost of production for the firm. To compensate higher cost, firms will raise price for those products ended up with higher inflation.

answered by: anonymous
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The aggregate demand curve is downward sloping because A) a lower inflation rate causes the real...
The aggregate demand curve is downward sloping because A) a lower inflation rate causes the real interest rate to rise, and stimulates planned investment spending. B) a higher inflation rate causes the real interest rate to fall, and stimulates planned investment spending. C)a higher inflation rate causes the real interest rate to rise, and stimulates planned investment spending. D) a lower inflation rate causes the real interest rate to fall, and stimulates planned investment spending.
An increase in expected inflation causes the short-run aggregate supply curve (SRAS) to increase (shift down...
An increase in expected inflation causes the short-run aggregate supply curve (SRAS) to increase (shift down and to the right). False True
If a higher inflation is expected, what would you expect to happen to the shape of...
If a higher inflation is expected, what would you expect to happen to the shape of the yield curve as per the pure expectation theory? Why? Draw the diagram and explain.
Discuss the potential costs of inflation: 1.If you expected inflation to be 10% how might you...
Discuss the potential costs of inflation: 1.If you expected inflation to be 10% how might you factor this into your earnings or contract? 2.how might you potentially control for unanticipated inflation in your contract? how does the government control for unanticipated inflation in determining social security payments?
Explain why following statement is not correct: “The higher the risk of my portfolio, the higher...
Explain why following statement is not correct: “The higher the risk of my portfolio, the higher the expected return I should get. Otherwise nobody will take any risks.” Use CAPM formula to help you understand.
higher consumption expenditure can increase rate of inflation. Prove the statement using suitable diagram. (need 500-600...
higher consumption expenditure can increase rate of inflation. Prove the statement using suitable diagram. (need 500-600 words)
If inflation equals expected inflation, investors in government bonds will: A. suffer losses regardless of inflation...
If inflation equals expected inflation, investors in government bonds will: A. suffer losses regardless of inflation because interest paid on government bonds is set by Congress. B. not suffer losses because inflation does not affect the purchasing power. C. suffer losses because they will be compensated by lower interest payments. D. not suffer losses because they will be compensated by higher interest payments.
The Phillips curve shows that: a- Inflation is usually higher than expected when actual equilibrium GDP...
The Phillips curve shows that: a- Inflation is usually higher than expected when actual equilibrium GDP is greater than potential GDP b- Changes in labor demand tend to be deflationary c- As unemployment rises, the general price level is rising d- Technological improvements might increase the level of noncyclical unemployment
There are different views on the causes of inflation. While the standard view is that inflation...
There are different views on the causes of inflation. While the standard view is that inflation is a monetary phenomenon, others emphasise the impact of fiscal policy. a. Explain how inflation is related to the money supply according to the quantity theory of money. Motivate your answer using equations. b. Explain how inflation may be triggered by fiscal considerations, e.g. a desire to increase government spending. Motivate your answer by formulating the government’s budget constraint.
In poor countries, what are the main causes of inflation and why?
In poor countries, what are the main causes of inflation and why?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT