Question

There is much concern raised today regarding the level of national debt in the US. Considering this, and the continuing use of fiscal policy, is the US at risk for hyperinflation? What are the implications for the macro-economy? For industry? How might globalization and global conflict contribute or ease the potential impacts?

please refer from the textbook MACROECONOMICS by N Gregory Mankiw

Answer 1

US fiscal policy and inflation :-

The US federal reserve is unable to solve the rising inflation by increasing its money supply .There is a detoriating outlook for fixed income assets .

On the top of that US follows an import substitution trade policy which will push up the prices of imported goods creating high pressure on local markets .

The Fed is unable to deliver stable prices leading to sharply steeping yield curve .

Instead of tightening money supply , the government is using other ways .While excessive money creates high demand which leads to price boost up.

Impact of inflation :-

1) It encourages good hoarding.

2) Supply of daily goods become scarce .

3) Loss of savings .

4) High withdrawal of money makes the bank go bankrupt .

5) The price of imported goods rise .

6) Unemployment increase

7) Government tax revenue falls

Role of globalization :-

1) Globalisation leads to integration of markets .More integration means more price fluctuations and less control over price level .

2) Thus it reduces the power of the Central Bank to control inflation through monetary measures .

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