Chapter 17.1, Problem 5R

To determine

To createa chart showing the relationship between weather, the Fed, Oil Shortage, war and inflation.

Explanation of Solution

Weather	The Fed	Oil Shortage	War
Extreme weather events tend to lead to a lower supply of soft products such as maize, wheat, soybeans, and corn. Even though supply has been expected to fall as a result of these extreme weather events, soft commodities prices have shoots up. Rising food prices will of course mean higher inflation figures.	The Fed makes an attempt to control inflation rates by setting and adjusting the federal funds rate target. This tool allows the Fed to contract or expand as needed the money supply, influencing target employment rates, price stability and economic growth that is stable.	Oil prices and inflation levels are also seen as intertwined in a relationship between cause and effect. Inflation which is the indicator of general market changes around the economy follows higher in the same direction when oil prices step up. By comparison, as oil prices decline, inflationary pressures begin to ease.	In wartime government spending for military purposes increases demand in an economy, while a transfer of jobs from productive labor to war production causes aggregate output to decline. War also triggers inflation of the sort arising from a rapid expansion of money and credit.

Economics Concept Introduction

Introduction: Inflation is generally characterized as a gradual rise in the level of prices for goods and services across an economy. There is no common opinion on the primary cause of inflation, although most economists believe that inflation frequently occurs within the economy during times of economic growth.