ECONOMICS/MACROECONOMICS ANSWERS 4
When using the quantity theory of money, when the Federal Reserve increases the supply
of money thus causing the value of money to fall and increasing the price level thus inflation as
inflation is an increase in price level.
Prices of different goods may not rise or fall together, so how do we arrive at a measure
of the general level of inflation?
Some items are sampled and put together; these are termed as the market basket and
prices are compared over time resulting in the price index and compared over the years.
Why do we say that debtors often benefit from inflation?
The reason is that the debtors benefit due to that the amount paid is worthless regarding
the present purchasing power.
The economic conditions of the 1970's seemed to contradict the implied claims of the
Phillips curve, why?
It occurred a stagflation which is the presence of increased levels of inflation, and there
was an increased level of unemployment. It was due to short-run graph between inflation and
unemployment rather than long-run graph
Why is deflation bad, macro-economically?
In a bad deflation, it means that it will decrease the output and productivity that will
cause unemployment as few workers will be needed due to low demand.
If productivity rises in proportion to wages, does this mean the wage increase does, or
that it does not, contribute to inflation? Why?