Indicate the best answer and then explain (if true why it is true; if false provide...

Indicate the best answer and then explain (if true why it is true; if false provide a counter-example).

[True, False or Uncertain] Part of the recent “Great Recession” was terribly high inflation rates approaching 10%.

Expert Solution

True. Part of the recent "Great Recession" was terribly high inflation rates approaching 10%.

This statement is true because rising inflation was one of the causes that pushed the economy into recession in 2008.

Inflation is usually not the main cause of recessions. Factors that are usually responsible for causing inflation are rising interest rates, decrease in lending by banks and a fall in investment. But, cost push inflation can be responsible for a recession. This happens if the inflation is more than the normal wage growth.

In 2008, factors like credit crunch, fall in housing prices, loss of confidence in banks & financial institutions and decreased world trade pushed the economy into recession. And along with these, cost push inflation was also responsible.

This is because inflation was more than the nominal wages. Since, it was higher than the nominal wage, it led to a fall in real wage which further reduced the consumer spending and hence, led the economy into recession.

Rahul Sunny answered 10 months ago

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