Central banks claim to provide stable currencies. They also claim that for fear of deflation, they aim at annual inflation rates not of 0%, but of 2%. Despite this compromise, how is the claim of providing stable currencies to be evaluated in the light of a 7% annual inflation rate? O Only the best and the brightest lead the world's central banks, so whatever they claim will most likely be true. O The problem is that central banks are private institutions, so unlike government agencies, they might just lie. A 7% annual inflation rate, if not reigned in, will approximately halve a currency's purchasing power within ten years, which casts the claim into some doubt. O 7% are just five percentage points above 2%, so it's not really a problem.

Central banks claim to provide stable currencies. They also claim that for fear of deflation, they aim at annual inflation rates not of 0%, but of 2%. Despite this compromise, how is the claim of providing stable currencies to be evaluated in the light of a 7% annual inflation rate? O Only the best and the brightest lead the world's central banks, so whatever they claim will most likely be true. O The problem is that central banks are private institutions, so unlike government agencies, they might just lie. A 7% annual inflation rate, if not reigned in, will approximately halve a currency's purchasing power within ten years, which casts the claim into some doubt. O 7% are just five percentage points above 2%, so it's not really a problem.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter22: Inflation

Section: Chapter Questions

Problem 34P: The total price of purchasing a basket of goods in the United Kingdom over four years is: year...

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The total price of purchasing a basket of goods in the United Kingdom over four years is: year 1=940, year 2=970, year 3=1000, and year 4=1070. Calculate two price indices, one using year 1 as the base year (set equal to 100) and the other using year 4 as the base year (set equal to 100). Then, calculate the inflation rate based on the first price index. If you had used the other price index, would you get a different inflation rate? If you are unsure, do the calculation and find out.
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