Most modern central banks engage in inflation targeting instead of aiming at some nominal level of GDP, some exchange rate level, or the unemployment rate. Most central banks choose a rate of between 2-3% annual inflation and periodically adjust interest rates via open market operations and discount rate changes.
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- There is currently a political and academic controversy whether or not stimulus packagesagainst the Covid-induced economic recession will cause inflation. Professor OlivierBlanchard has warned that the stimulus package of the US-administration may lead toinflation in the US. However, he does not see inflation dangers emanating from stimulusprograms in the Eurozone. The Next Generation EU program is not only considered to be a stimulus program but also tobe a growth program, which by spending on infrastructure and climate-related investmentsis expected to lead to an increase in potential output.Analyze in an AD-AS model the impact of economic growth on actual GDP and the pricelevel. Also elaborate on the role that an additional demand stimulus could play.Given the unpopularity of inflation, why don’t elected leaders always supportefforts to reduce inflation? Many economists believe that countries can reducethe cost of disinflation by letting their central banks make decisions aboutmonetary policy without interference from politicians. Why might this be so?Suppose the public believes that a newly announcedanti-inflation program will work and so lowers itsexpectations of future inflation. What will happen toaggregate output and the inflation rate in the short run?
- If higher inflation is bad, then why might it be advantageous to have a higher inflation target rather than alower target that is closer to zero?. “Persistent budget deficits always lead to higher inflation.”Is this statement true, false, or uncertain? Explain youranswerConsider two countries, A and B. In A, new technologies (e.g., mobile payment apps and cryptocurrencies) have been enthusiastically adopted by the population, thereby reducing the proportion ofincome that is held as real money balances. Over this period, no such changes occurred in B. Ifthe rate of money growth and the growth rate of real GDP were the same in A and B over thisperiod, then how would the rate of inflation differ between the two countries?
- What are the chances of MMT becoming the prevailing policy after the COVID crisis? Are we already doing MMT without knowing it? Professor Kelton says we shouldn't worry about inflation (we've haven't had much in the last 20 years) her critics disagree because they believe MMT pushes the envelope toward inflation. can yoy please explain im confuseSuppose that a country’s inflation rate increasessharply. What happens to the inflation tax on theholders of money? Why is wealth held in savingsaccounts not subject to a change in the inflationtax? Can you think of any way in which holders ofsavings accounts are hurt by the increase in inflation?Inflation targeting consists of the Federal Reserve using monetary policy to reduce the annual inflation rate by a set amount cach year until the rate of inflation is negative using monetary policy to hold the price of a fixed basket of commodities (wheat, gold) to a 5-6 percent annual rate regularly stating an explicit goal for the rate of inflation over some future period, such as 2 percent inflation over the next two years identifying the sources of inflation and recommending structural changes in the economy that would relieve upward price pressures
- Critically discuss why oil price shocks in the US may have had different effectsin the 1970s versus the 2000s before the Financial Crisis. Use three-panelgraphs of the IS-LM-PC model and graphs of inflation over time to help explainyour answeWhich substitute we may use if future prices are not expected to follow thegeneral inflation rate?E4 Controlling inflation is a more important policy objective than ensuring full employment’. Critically assess this statement.