Inflationa.What is inflation and how is it calculated? List and explain the two types of inflationb. Give two examples of who might be hurt by inflation and why. Give two examples of who might be helped by inflation and why.c. Inflation and how to use Fiscal Policy to address the problem of Inflation.

Question
Asked Oct 28, 2019
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  1. Inflation

a.What is inflation and how is it calculated? List and explain the two types of inflation

b. Give two examples of who might be hurt by inflation and why. Give two examples of who might be helped by inflation and why.

c. Inflation and how to use Fiscal Policy to address the problem of Inflation.

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Expert Answer

Step 1

a) The constant rise in prices in an economy over a period of time is called inflation. It is calculated by using Consumer Price Index, i.e., change in prices from the point of view of the consumer and the Producers Price Index, i.e., change in prices from the point of view of the producers.

Step 2

Inflation is mainly classified into two types as follows.

  • Demand-pull inflation: demand-pull inflation is a situation in which, an increase in demand exceeds the existing supply in an economy. This implies that, the economy growing faster than the expected rate.
  • Cost-push inflation: cost-push inflation is a situation under which, an increase in cost of production leads to a continuous increase in the general price level.
Step 3

b)  Workers and savers are the two major groups, who might be hurt by inflation. An increase in inflation would, reduce the real wage of the workers and depreciates the value of savings.

Companies and borrowers are the major bene...

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Fiscal Policy

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