Inflation (1 Viewer)

[-pari-]

1) "For govts to achieve price stability, inflation must be kept at or near zero" . Please explain.
I guess a good place to start would be....what exactly do you mean by "price stability" ?? That the general price level does not change - stays constant..??

2) the short/long phillips' curves. i dont get them.

with the short run curve
- how would decreasing inflation, increase unemployment?
- why's the curve curved? not...say...straight?

also...with the long run curve
- why are the SRPC lines different, like they're straight instead of curved......?
- why are they (^^) negative sloping?
- why is there a natural rate of unemployment in the first place? theoretically, shouldn't there be no unemployment when the economy is working at full capacity?
- when unemployment returns starts to increase again after inflationary expectations rise....why does it just stop at the natural rate of unemployment? who's to say it wont increase beyond that ?
a tad confused with these curves.

3) Explain the role of microeconomic reform in maintaining low stable inflation in Aus.

any help muchly appreciated

 

[imprsiv]

wow you really are taking that holiday study quite seriously. Havn't learnt that stuff yet, and what topic is that?

 

[-pari-]

lol, we started from topic three: economic issues

--> subtopic: inflation

 

[Sparcod]

1) "For govts to achieve price stability, inflation must be kept at or near zero" . Please explain.
I guess a good place to start would be....what exactly do you mean by "price stability" ?? That the general price level does not change - stays constant..??

No. It means that price changes are minimal- 2 to 3% per annum. It's impossible to have 0% inflation rate forever. Also, it can't be too low because firstly, deflation is a bad thing itself and very low inflation will raise unemployment- see Phillips curve.

2) the short/long phillips' curves. i dont get them.

with the short run curve
- how would decreasing inflation, increase unemployment?
- why's the curve curved? not...say...straight?

also...with the long run curve
- why are the SRPC lines different, like they're straight instead of curved......?
- why are they (^^) negative sloping?
- why is there a natural rate of unemployment in the first place? theoretically, shouldn't there be no unemployment when the economy is working at full capacity?
- when unemployment returns starts to increase again after inflationary expectations rise....why does it just stop at the natural rate of unemployment? who's to say it wont increase beyond that ?
a tad confused with these curves.

LRPC means that NAIRU (natural rate) stays the same in the long run regardless of inflation. There'll always be unemployment even eco. growth at full capacity because there'll always be structual and frictional at least. Cyclical varies from time to time.

The way SRPC works...
If unemployment rises, people will spend less and hence lower demand and inflationary expectations will fall and hence inflation is lower.
If unemployment falls, there'll be raised demand-pull inflation (and raised cost infaltion due to lower supply of workers) and hence infl. expt. will rise. Inflation goes up.
Economic growth ties them two together.

3) Explain the role of microeconomic reform in maintaining low stable inflation in Aus.

micro. reform=improved efficiency=lower prices (resources allocated wisely and costs are lowered due to tech. eff.)=controlled inflation rate.
The main purpose of micro. reform is to improve efficiency of industries.

any help muchly appreciated

You welcome.

 

[-pari-]

Cheers