Inflation and Aggregate Expenditure

Unit 6: In no more than 300 words, explain how changes in the Bank of England’s official rate can modify the impact of foreign inflation on domestic inflation.

(b) Coupon and principal of the Regular Treasury bonds are fixed, therefore if the inflation rate increases in the forecasting future, investor will receive the same amount of coupon and principal with less real value and purchasing power.

c. Which one-unit increase in consumption from one point to the next along the total utility curve generates negative marginal utility?

3. Who would benefit from unanticipated inflation –lenders or borrowers? Why? Who would benefits from anticipated inflation –lenders, borrowers, or neither? Why?

By the macroeconomic theory learned in Economics 103 this concerns the unemployment rate, interest rates, The Fed, aggregate demand curve, monetary policy, and inflation.

1) The choice of the average inflation rate and a corresponding average rate of money growth in the medium term; and

D: constant short-term interest rates in the near future and a small decline further out in the future.

(a) Which policy is more expansionary: a $100 billion increase in government spending or a $100 billion cut in taxes? Explain why (5 marks)

C) a leftward shift in the money demand curve and a rightward shift in the

from 3% to 5% while there is no change in the real rate, then the nominal rate

When looking at the advantages and disadvantages of inflation, it is important to consider what type of inflation is occurring. For example,

Inflation is general defined as the devaluation of the currency with the comprehensive and continued rising price level, which means the purchase of money is persistent declining (James and Charles 1975). And this is generally considered as the result of the amount of money in circulation more than the actual needs of the economy. It will directly leads to the devaluation of paper money. If the income of residents do not change, then the living standard of citizens will dropped, which might result in the social and economic disorder and can negatively impact the development of the economy. However, within a certain period of time, moderate inflation can stimulate consumption, expand domestic demand and promote economic development (Trevithick and Mulvey 1996). For example, sometimes the government borrow money from the central bank to expand financial investment and take measures to ensure that the private sector investment is not reduced, which promote economic growth as a result of the increase in total investment. Another case is for producers that the speed of product prize rising is always faster than the that of the nominal wage, so the profit of the enterprise in the short term will increase, and the enterprise will expand investment, as a result, have an positive effect on the economy.

How Economics sees it- “Inflation is a Sustained Increase in the General Price Level of Goods and Services in an Economy over a Period of Time.”

Since investment is an important component of GDP, GDP growth will slow down and capital accumulation will proceed at lower pace as well.

3. It doesn 't take into account effects of the substitution effect. Due to this, the CPI overstates inflation, when consumers choose to substitute one good for another after its price becomes cheaper than the good they normally buy.