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(a) Illustrate the role of money supply in causing inflation
(b) Explain the negative effects of high inflation
(c) Using the AD-AS model, demonstrate the potential causes of inflation
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- The COVID-19 pandemic continues to present new challenges to the Australian economy. The Treasury has announced that they continue to support the economy by adding $41 billion in direct economic support, bringing total support since the beginning of the pandemic to $291 billion as of May 2021. Using a AD-AS graph, illustrate how this support would impact on economic growth and inflation in the short and long termInflation can be caused either by rapid growth rate of aggregate demand or by sluggish growth of aggregate supply. True or FalseWhich of the following is NOT true about consequences of high unanticipated inflation Select one: a. It hurts people with fixed income b. It encourages consumption rather than saving c. It leads to investments into unproductive assets such as antiques, jewelry and foreign currency d. It encourages people to hold money in cash rather than in the bank e. It reduces the real value of cash you keep in your wallet
- True or False: Cost-push inflation is caused by a rightward shift in the short-run aggregate supply curve.A rightward shift in the macro aggregate demand curve tends to generate a ________ inflation and ________ output. Group of answer choices cost-push; lower cost-push; higher demand-pull; higher demand-pull; lowerThe rational expectations assumption is unrealistic because, essentially, it amounts to the assumption that every consumer has perfect knowledge of the economy.” Discuss in the context of developing countries.
- Using a separate set of AS-AD diagrams for each of the following scenarios, explain what is likely to happen to the output (Y), unemployment, price level, and inflation in the short run, making sure to explain the shifts in any curve: a. U.S. households decide to save more and more than doubles the total savings per year. b. With the news of rapid vaccinations, the consumer and business confidence surges. c. Natural gas is now the most important source of power in the U.S. And, since the advent of fracking, it is also the cheapest. New administration imposes a ban on fracking which increases the prices of not only natural gas, but all carbon fuels. d. The U.S. is currently described as mostly recovered from the pandemic induced recession. Congress and the White House enacts a $2 Trillion “infrastructure” spending.The economy of Pakistan has faced both a supply demand shock in the first quarter of 2020. Using the AS/AD model explain how you expect the economy to behave in the short and long run. How does the decision to reduce the policy rate impact the economy. Explain using the ISLM model focusing on impacts on the goods and services market and the financial market.Discuss one specific example of cost-push inflation for the case of Malaysia? Explain clearly the intuition and illustrate the effect using the AD-AS model?
- Distinguish between anticipated, unanticipated, and imperfectly anticipated inflation regarding its consequences in an economy in both the short and long run. In describing these weigh the pros and cons of indexation.Why is high inflation (5-10%) a bad thing for an economy? Group of answer choices -It increases contracting costs -Higher inflation tends to be associated with more volatility in prices -It often leads to currency depreciation -It is associated with lower economic growth -All of the above Only typed AnswerQuestion: Demand-pull inflation occurs when: A) Costs of production decrease B) Aggregate demand exceeds aggregate supply C) Consumer savings increase D) Government spending decreases
