« previous next »

Author Question: Describe how inflation can be costly even if it is anticipated. What will be an ideal ... (Read 147 times)

123654777

  • Hero Member
  • *****
  • Posts: 585
on: Jun 29, 2018
Describe how inflation can be costly even if it is anticipated.
 
  What will be an ideal response?

Question 2

If rational workers and firms know that the Federal Reserve is following a contractionary monetary policy, they will expect inflation to ________ and will adjust wages so that the real wage ________.
 
  A) increase; decreases B) decrease; increases
  C) increase; remains unchanged D) decrease; remains unchanged


fffftttt

  • Sr. Member
  • ****
  • Posts: 322
Reply #1 on: Jun 29, 2018
Answer to Question 1

First, there will be redistribution as some incomes fall behind even an anticipated level of inflation. Second, firms and individuals must hold money to perform transactions. Those holding money lose purchasing power at a rate equal to inflation. Third, firms must pay individuals to change prices. These costs, called menu costs, can be substantial at very high levels of inflation. Fourth, investors have to pay higher taxes on interest and capital gains income as the government taxes nominal interest and capital gains income. Investors then lose real after-tax income.

Answer to Question 2

D


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

The first monoclonal antibodies were made exclusively from mouse cells. Some are now fully human, which means they are likely to be safer and may be more effective than older monoclonal antibodies.

Did you know?

Chronic necrotizing aspergillosis has a slowly progressive process that, unlike invasive aspergillosis, does not spread to other organ systems or the blood vessels. It most often affects middle-aged and elderly individuals, spreading to surrounding tissue in the lungs. The disease often does not respond to conventionally successful treatments, and requires individualized therapies in order to keep it from becoming life-threatening.

Did you know?

All patients with hyperparathyroidism will develop osteoporosis. The parathyroid glands maintain blood calcium within the normal range. All patients with this disease will continue to lose calcium from their bones every day, and there is no way to prevent the development of osteoporosis as a result.

Did you know?

Cyanide works by making the human body unable to use oxygen.

Did you know?

Elderly adults are at greatest risk of stroke and myocardial infarction and have the most to gain from prophylaxis. Patients ages 60 to 80 years with blood pressures above 160/90 mm Hg should benefit from antihypertensive treatment.

The logistic growth model does not describe all populations. The logistic growth model does not describe all populations.
The following terms describe types of body movement that occur at the diarthrotic joints The following terms describe types of body movement that occur at the diarthrotic joints
Cause of Inflation Cause of Inflation
What are examples of ideal forms? What are examples of ideal forms?
How to create a price index to calculate inflation for a basket of goods How to create a price index to calculate inflation for a basket of goods
How to describe transformations of a sinusoidal function (y=a*sin⁡b(x−c)+d) How to describe transformations of a sinusoidal function (y=a*sin⁡b(x−c)+d)
Video: Introduction to filtration - filtrate formation and composition

For a complete list of videos, visit our video library