Author Question: Assuming that C + I + G > C + Ir + G, then a. aggregate demand exceeds than output. b. ... (Read 46 times)

jake · **on:** Jun 30, 2018

Assuming that C + I + G > C + Ir + G, then

a. aggregate demand exceeds than output.
b. unplanned inventories are negative.
c. there is an unintended inventory accumulation.
d. Both a and c
e. None of the above

Question 2

Unanticipated inflation always benefits somebody, so the overall cost cannot be higher than it is for anticipated inflation. Comment.

What will be an ideal response?

choc0chan · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

D

Answer to Question 2

It is true that mistaken expectations of inflation cause one party to a transaction to get a better deal than intended, at the expense of the other party. But the true value of that better deal is reduced by the fact that neither party knows, in advance, who will win. Few workers, for example, would prefer to be paid on the basis of a lottery in which losing is as likely as winning. Moreover, unanticipated inflation is difficult to recognize, even after the fact. If the size of your nominal wage increase exceeds your expectation of inflation, does that mean your real wage is higher, or that your expectation was mistaken? By the time you figure it out, you may have made a wrong decision.