Question

In: Economics

Robert Shiller asked a sample of the general public and a sample of economists the following...

Robert Shiller asked a sample of the general public and a sample of economists the following question: "Do you agree that preventing high inflation is as an important national priority, as important as preventing drug abuse or preventing deterioration in the quality of our schools"? Fifty-two percent of the general public, but only 18 percent of economists fully agreed. Why does the general public believe that inflation is a bigger problem than economists do?

( I WANT IT WRITTEN NOT PICTURED )

Solutions

Expert Solution

Economists know that increased inflation will lead to a devaluation of currency by the same amount and the real value of goods and services will not change at all.

For example, if the inflation in the country is equal to 10%, initially people will have to pay some extra amount from their income but in the long run, the income of the people will also increase by the same amount i.e. 10% and the real value of thing will remain the same. If the people were paying $100 for a car service before inflation and earning $1000 as their income after inflation the car service may cost them $110 but their income will also by $100 that is a total o $1100.

Inflation cause panic in the general people because they see the nominal value of things, not the real value. For them paying $10 extra for a car service will look more but what they do not account is their increased income, interest rates, wages etc in the economy.


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