b)
What are the consequences of higher than
anticipated inflation in the labour and financial
markets?...
b)
What are the consequences of higher than
anticipated inflation in the labour and financial
markets?
c)
What is core inflation and how does
it differ from “regular” inflation?
Solutions
Expert Solution
b.
Unanticipated inflation creates a serious impact on both the
labour and financial markets.
It creates a serious impact on labour markets in terms of
income and the employment rates while it impacts the financial
markets in terms of redistributable income between the borrower's
and lender's.
When the inflation is higher the anticipated in the labour
markets, the quantity of labour demand Increases and the
unemployment rate decreases. This will thus lower the wage rate in
the markets. With decrease in wage rate the employers gain more
than their workers when the inflation is Higher than
anticipated.
Similarly when the inflation is higher than anticipated in
financial markets, the borrower's gain more than the lenders
because at this point of time, the interest rates fall which allows
the borrower's to borrow more while the lenders are only able to
lend less.
c.
Core Inflation is another type of inflation in which it
includes the changes in the prices of all the goods and services
excluding the food and energy goods and services.
It differes from regular Inflation as the regular inflation
refers to the change in the general price level of all goods and
services in an economy.
the higher the anticipated inflation rate, ...
a. the more workers will ask for in wages and the more firms
will agree to pay
b.the more workers will ask for in wages and the less firms will
agree to pay
c. the less workers will ask for in wages and the less firms
will agree to pay
d. the higher the real wage increases offered by firm
e. the higher the real wage increases asked for by workers
1.If the price level in the current period is higher than what
buyers and sellers anticipated, what will tend to happen to real
wages and the level of employment? How will the profit margins of
business firms be affected? How will the actual rate of
unemployment compare with the natural rate of unemployment? Will
the current rate of output be sustainable in the future?
5. (a) What is the difference between the real interest rate and
the money interest rate?...
A) Suppose Inflation is higher than the Fed's target rate. To
reduce Inflation, the Fed should .................... government
bonds. This will in turn ................... money supply and
.................. interest rates. In essence, what kind of
Monitory Policy is the Fed Running here ?
B) If the Fed changes interest rate from 0.25% to 0.75% while
the European central bank keeps the interest rate unchanged at
0.25% what would be the impact on : U.S. Capital Inflows (increases
or Decreases)? U.S....
“Inflation is caused by tightness in labour markets, so policy
should be oriented at
inducing unemployment to bring down wages.” Critically
discuss.
Word Limit – 750
1- in the long run, if inflation is higher in India than in the
U.S.A., one would expect
a. the dollar to depreciate relative to the
rupee
b. the rupee to depreciate relative to the dollar
c. the rupee to appreciate relative to the dollar
d. two of the above are correct
2- if interest rates rise in Europe (with no change in expected
inflation),
a. the dollar will appreciate relative to the euro
b. the dollar will depreciate relative...
Mexico tends to have much higher inflation rate than the United
States and also much higher interest rate than the United States.
Inflation and interest rates are much more volatile in Mexico than
in industrialized countries. The value of the Mexican peso is
typically more volatile than the currencies of industrialized
countries from a US perspective; it has typically depreciated from
one year to the next, but the degree of depreciation has varied
substantially. The bid/ask spread tends to be...