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Author Question: Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth ... (Read 46 times)

cherise1989

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on: Jun 30, 2018
Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?

Question 2

Because of the large amounts of resources devoted to understanding the nature of financial crises, researchers now feel comfortable making forecasts and do not expect to have any more surprises in the future.
 a. True
  b. False
  Indicate whether the statement is true or false


peilian

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Indexing is not frequently used because it can always worsen inflation. As prices go up, wages and certain other contractual obligations also automatically increase and this immediate and comprehensive reaction to price increases, leads to greater inflationary pressures. In addition, indexing does not allow relative prices to reflect change in relative scarcity.

Answer to Question 2

False


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