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1. What is Inflation: Five Types of Inflation Defined
Inflation is a situation of sustained and inordinate increase in the prices of goods and services.
When there is a rise in general price level for all goods and services it is known as inflation. An inflationary situation could be because of the rise in any single price or a group of prices of related goods and services.
Types of Inflation
There are no less than five different types of inflation:
• Commodity inflation, better known as cost-push inflation
• Wage inflation, otherwise known as demand-pull inflation
• Monetary inflation,
• Fiscal inflation, and
• Foreign exchange inflation.
As the name
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Introduction and Definition
Inflation is a phenomenon which happens world wide. It causes many problems to countries all over the world. Inflation is the rise in the general level of prices. When inflation occurs, each ringgit of income will buy fewer goods and services than before. Inflation will reduce the "purchasing power" of money. However, not all prices rise during inflation. There are some prices which are relatively constant while some prices are decreasing.
There are two types of inflation. The first type is called the demand-pull inflation. This type of inflation usually happens when there are changes in the price level that are caused by an excess
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arises among Bangladesh people for these unsustainable price hike in consumption goods and what are the initiative measures government can take to at least make the price level sustainable.
What is Inflation?
Inflation is the rise in general level of prices of goods and services. It can be said in other ways that inflation is the decrease in value of money. It means that
• Each dollar can purchase fewer amounts of goods and service then previous.
• It reduces the purchasing power of the currency.
Inflation does not mean that all prices are increasing, even during period of rapid inflation; some prices may be relatively constant while others are falling.
The troublesome aspect of
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There is a great controversy over the question whether inflation promotes economic development. A group of economists including Keynes is of the opinion that inflation, in one form or the other, is a factor which helps economic growth.
Usually, two main arguments have been advanced in support of the view. Firstly, it is argued that inflation tends to redistribute income and wealth.
The redistributive effect of inflation is always in favour of profit-earning class, that is to say, it redistributes income always from the wage-recipient class towards the profit-recipient class in the community.
As a result, the saving ratio will increase because the marginal propensity to save of the profit
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Consequences and Causes of Inflation: A Study in the Context of Bangladesh
Mohammad Nayeem Abdullah1 Robaka Shamsher2 Newaz Ahmed Chowudhury3
Abstract In Asia, Bangladesh is one of the hardest hit by the current wave of inflation and oil price hike. The economy has been observing double digit inflation growth on point-to-point basis since July 2007. In Bangladesh, the correlation between per capita income and food weight in total Consumer Price Index (CPI) is one of the highest in the world and the economy is vulnerable to sharp hikes in fuel and non-fuel commodity prices. The BDTUS$ exchange rate has been depreciating steadily for some time, reaching a record high of BDT 72.70 per USD in
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L'inflation est une hausse durable et générale du niveau du prix.
Étymologie : du latin inflare, enfler, gonfler.Le terme inflation désigne une augmentation durable, générale, et auto-entretenue des prix des biens et des services. L'inflation est aussi caractérisée par l'accroissement de la circulation de la monnaie (masse monétaire).Le taux d'inflation est généralement mesuré à partir de l’Indice des prix à la consommation (IPC)Les différents niveaux d'inflation :
Stabilité des prix : taux d'inflation inférieur à 2% ;
Inflation rampante : 3 à 4% par an ;
Inflation ouverte : 5 à 10% de hausse (avec des pointes à 20%) ;
Inflation galopante ou hyperinflation : plus de 20%.
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When aggregate demand for goods and services exceeds aggregate supply of output which is produced by fully employment the given resources of an economy, excess demand is said to occur. This excess demand leads to the rise in general price level, that is, inflation in the economy. When aggregate demand exceeds aggregate supply at the current prices at full employment level, the demand inflation is, said to exist.
Excess demand results in inflation which is described as demand-pull inflation. At the full employment level, all the productive resources are fully exhausted. Any increase in demand can not bring about rise in real output. The real output remains constant whatever the demand may be
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Many policymakers during this time in Japan may have hastily made responses to economic policy, without fully and accurately forecasting potential rates of inflation. There were implications and fluctuations of macroeconomic stability for Japan in the mid-1990s and through the early 2000s.
To fully understand what was happening during the late 90s and 2000s, it is important that we understand what took place the decade or so prior to this timeframe. Focusing on monetary factors, it is important to note the widespread market expectations that the then low interest rates would continue for an extended period, in spite of clear signs of economic expansion within the country of Japan during
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25-YEAR TRACK OF MEXICO’S INFLATION
Reference: ("inflation.eu worldwide inflation," 2012)
This line graph represents Consumer Price Index (CPI) inflation for the last twenty-five years in Mexico. The graph spans from 1987 to 2011. The data recorded is the inflation percentage for the year. The high for the last twenty-five years was 159.17% in 1987. The low for the last twenty-five years was 3.33% in 2005. There are two spikes of inflation. These occurred in 1987 and 1995 and were sparked by economic irresponsibility.
The first spike in inflation, which occurred in 1987, was a result of poor fiscal policy implemented by President Echeverria and President Lopez Portillo. Their
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A radical central banking policy adopted by New Zealand initially in 1989 that revolves around meeting preset, publicly displayed targets for the annual rate of inflation, is more commonly known as inflation targeting. This policy was adopted later on most notably by countries like Chile, Canada, Israel, Sweden, Finland (Pre- Eurozone), Spain (Pre-Eurozone), Australia, Brazil, Mexico, England and South Africa. The benchmark used for inflation targeting is typically a price index of a basket of consumer goods, such as the Consumer Price Index (CPI) in the United States. Along with inflation target rates and calendar dates to be used as performance measures, an inflation
868 words - 4 pages
What policies can a government and central banks undertake to increase inflation in the Eurozone?
One way in which governments and central banks could increase inflation is by the application of Quantitative easing. This would mean that AD would increase price and price levels raise, thus increasing levels of inflation. What QE is, is the banks buying government bonds or gilt’s from private sector companies, this will make the price of the gilts rise and making them a less attractive investment. Companies can then use the money to invest in other things. This will also raise money supply by lowering interest rates. This will lead to businesses being able to borrow at cheap, for these
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Food inflation is consistent rise in the price level of all agricultural food items. In India we grow plenty of rice and wheat which are also called cereals and there supply and price are not the main reason of food inflation, however the culprit lies in the supply of non-cereals such as fruits, vegetables, milk and pulses (dal) which causes food inflation.
Now the million dollar question is if prices of fruits, vegetables and pluses are higher then why the farmers are not concentrating on growing those more in order to earn more profits.
Reasons for low non-cereal output are:-
Pulses: - Pulses are fundamentally different from cereals since they need more nutrients and
1950 words - 8 pages
5 habits holding you back -- and how to change them
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By: Norine Dworkin-McDaniel
I was meeting my friend Linda at our favorite Brooklyn cafe to discuss a project. "Six, sharp. I'll see you then," I promised. And by 6:15 p.m., there sat Linda, with a cool margarita in front of her and steam coming out of her ears. I breezed in at 6:30, full of apologies and excuses. But it was no use: I was late -- again -- and she was furious. She tartly informed me that if I kept her waiting once more, I'd be kicked
2189 words - 9 pages
The 2008–2009 automotive industry crisis and regional unemployment in Central Europe
Employment in central Europe increased sharply due to the progress of the car industry, but such thing has its drawbacks since we cannot mainly focus on one industry to be the backbone of the economy. Consumers have different taste and may easily shift their interest to other firms outside the region; a clearer example would be that of the oil industry in GCC countries, as they stopped depending on oil as their essential survival and the only way by which they can boost their economy. What is even worst for central European countries is them being unable to control or possess their own
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The relationship between inflation and growth has remained a controversial one in both theory and empirical findings. Over the past couple of years, a lot of economists have claimed that an increase in economic growth leads to an increase in inflation and that decreased growth reduces inflation. There are several theories to explain the nature and existence of the inflation-economic growth with the theories suggesting that variety of possible conclusions. These include: Classical, Keynesian, Neo-Keynesian, Monetarist, Neo-classical and Endogenous growth theories. Studies have shown that inflation and its variability have significant real costs to the economy with several of the
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Consequences of inflation
Inflation occurs when there is a sustained increase in the general level of prices and the purchasing power of money falls correspondingly. The government tries to control inflation as it is a major aim in their policies. For example, in the UK the government targets inflation at 2% per year and not zero inflation. Although hard to believe, inflation is actually beneficial for the economy overall and outweighs the costs. This happens only when the inflation rate is at low levels (approximately 2%-5 %.)
To begin with, a positive aspect of inflation is that a low rate increase in price levels allows greater flexibility in a growing economy and it also helps prices
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The inflation targeting policy is mainly decided by RBI and Government targeted at “Inflation target” by mainly controlling the interest rates. A control over the Interest rates helps curbing the inflation in the long run. Inflation acts as a deflator in GDP thus it needs to be kept under a certain range.
To spur up the GDP to the targeted levels we need to lower the interest rates so as to increase the economic activity and boosting the health of the economy. But doing that at the same time would lead to increase in consumer spending thus increasing the inflation. Thus there arises a seeming tradeoff between growth and inflation.
In the current scenario of our country there are various
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The topic of this paper is mainly discussed on the causes of inflation by explaining how the sustained inflation occurs as well as the role of played by monetary policy in the inflation process. The author in this paper agreed that sustained inflation is always and everywhere a monetary phenomenon and this has been agreed by both monetarist and Keynesian assumption.
Besides that, the author also mentioned that we need to understand why inflationary monetary policy occurs. This paper also examines the inflation issue faced by United States and accommodating policy which has been used in order to achieve high employment target. Contractually, expectation is
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From Inflation to More Inflation, Disinflation and Low Inflation
By Allan H. Meltzer
The Allan H. Meltzer University Professor of
Political Economy, Carnegie Mellon University and
Visiting Scholar, American Enterprise Institute
Keynote Address, Conference on Price Stability
Federal Reserve Bank of Chicago
Thursday, November 3, 2005
From Inflation to Disinflation and Low Inflation
By Allan H. Meltzer
Volume 2 of A History of the Federal Reserve covers mainly the years of inflation and disinflation, followed by a return to what is now regarded as relatively low inflation. It treats four questions: Why did inflation start? Why did it continue for 15 or more
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riday, April 25, 2008
How is WPI inflation rate calculated in India?
With inflation rate surging to new heights, the term is more in the news than ever in India. While leaving aside the debate on whether India should adopt CPI (Consumer Price Index) based inflation calculation rather than the current WPI (Wholesale Price Index) based one, let’s find in detail how inflation rate is calculated in India; which is the WPI based inflation rate.
What is inflation?
Inflation rate of a country is the rate at which prices of goods and services increase in its economy. It is an indication of the rise in the general level of prices over time. Since it’s practically impossible to find out the
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ECONOMIC of INDONESIA
Gabriella Vidiananda 0810233017
Ira Ardella Putri 0810233023
Gilang Pradipta 0810233018
Faculty of Economic
University of Brawijaya
Definition of inflation
We often hear the word inflation (level of inflation) on television, in newspapers, magazines, and various other media. Inflation is one of economic symptom that has much attention from the economic expert. In many cases inflation is unbeneficial symptom and the people who has fix salary is the most harm.
In principle, the definition or meaning inflation was widely noted scientists and experts in their field. With regard to the
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Vietnam’s inflation last month, 27%, reached highest position in asia. Prices of everything go all the way up, especially necessities like gasoline, food and clothes (e.g: food prices increased 74%). Overdose foreign investment and technologically backward industry seemed to be the causes. Besides, overty rate has reduced to 15% from 58% since 1993, but now it is likely to raise again. Some workers who led vietnam’s rise from poverty are suffering from expensive city life, planning to return to their rural home. The people become disappointed as they see no efficient solution from the government. However, most economists think this period is just a temporary bump in growth.
2113 words - 9 pages
Policy Paralysis and Inflation
Feb 3rd 2011, C.P. Chandrasekhar
Inflation that had been officially declared as being on the wane is back and raging. Focused on food articles, it is eroding the real incomes of the already poor and, therefore, the popular support which brought UPA II to power. Particularly damaging is the fact that high inflation has been the norm for a year now, with its incidence shifting across commodities, but most often falling on one or other set of food articles. The government seems to be helpless and just wishing that the problem would go away. Almost a year ago, when addressing a Chief Minister's conference on food prices early in February 2010, Prime Minister
928 words - 4 pages
Causes and Effects of Inflation
Causes and Effects of Inflation
Supply and demand are one of the key factors when it comes to the economics of a country or region. The two factors happen to be the greatest determinants of prices. In cases where there is a high demand and low supply in a region, the prices of commodities or services provided tend to hike. The hiked prices due to high demand and low supply lead to inflation. Inflation has become a worldwide phenomenon that has seen the cost of living to shoot up in most parts of the world. This increase in the cost of living is attributed to by the increase in the demand for basic commodities and a decrease in
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age within its scope. This will reduce the cost because they will be shared out widely as possible. For those whom are ask to join, everyone has to pay the same Premium rate, which the lower risk find unfair because they have to pay for high risk people.Goverment argued that fairness is when everyone can have a certain supporting service or benefit, such as health care in time of misfortune regardless if they can pay the Premium or not.( 745 words)
High Inflation and interest Rate
High Inflation in UK between 2007 and 2008 had a different impact on household Finances, as Money loses purchasing power. This means that the given amount of Money will buy few goods and services. Example
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Indian and Chinese policies to tackle inflation
India and china the two Asian giant, have shown economic growth in last few decades. The expansion of the economy brought high inflation in both countries. Inflation impacts all types of the consumers while rich or poor, it will become a real problem if the countries didn’t adopt policies to decrease the inflation rate. India and china have a very fast economic growth with fast population. The government and the central bank have to work beside to curb the inflation using two main policies are monetary policy and fiscal policy. In the monetary policy the central bank has to manage the many supply in the market and also control
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Inflation Essay – Yr 11 economics
Causes and Consequences of Inflation
Inflation is a sustained rise in the general level of prices in an economy. Several measurements of inflation are available but the most widely used measurement in Australia is the Consumer Price Index (CPI), which measures the percentage change in the prices of selected consumer goods and services over time and therefore reflects changes in the cost of living.
The rate of change in the CPI is known as the headline rate of inflation since it covers the movement in the prices of a basket of goods and services weighted according to their significance in the average Australian household.
Some problems in the
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A Viable Market for Inflation-Linked Products in China
How serious is the inflation in China? According to official statistics, inflation rate in China is about 3%~4% at present, which seems very moderate. But this result contrasts with the feeling of Chinese people and is considered incredible. Other evaluation methods are proposed by economists, showing quite different outcomes. In the report Research of the inflation degree in China, Yanchen Qi selected prices of diesel and corn as samples and reached the conclusion that current inflation rate is nearly 30%. In addition, the compound inflation rate from 2000 to 2011 can be estimated using the price of pork, which increased from RMB 6
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To what extent is inflation damaging to the economy? 18
Inflation is a sustained rise in the average price level. Inflation is measured in two ways the CPI and the RPI. CPI is a measure of the price level used across the European Union and used by the bank of England for setting its inflation target which is currently at 2%, it is calculated using a weighed basket of goods. This basket contains 650 goods. 100,000 households buying patterns of the goods in the baskets are recorded and the inflation rate is calculated through these figures. Maintaining a stable and anticipated inflation rate is a key government objective as it allows them to plan government spending for the future
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Fiscal Policy affects The Coca-Cola Company as it does many other businesses. The four components of Fiscal Policy are employment, growth, business cycle and inflation. The following discusses the different aspects of Fiscal Policy as related to The Coca-Cola Company.
One of the Coca-Cola Company’s strongest strengths lies in its ability to conduct business on a global scale while maintaining a local approach, one of the most intelligent strategies thought up by the human resource department of Coca-Cola.
Coca-Cola manages its human resource department through a decentralized human resource system, which means that not only management can have an input in
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During recent decades, inflation targeting has become one of the most significant developments in both the theory and the practice of monetary policy. An increasing number of central banks around the world have adopted this strategy as the basic framework governing their respective monetary policies (Friedman, 2004). As this trend has become hot, however, problems arises. A question worth discussing derives from those problems is that how to evaluate the monetary policy conducted by an inflation-targeting central bank. There is a view that the evaluation should not base on simply comparing the actual values for inflation with the inflation target. The reasons for this
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Inflation, exchange rates and the role of
monetary policy in Albania
Marta Muço (Anteon Corporation), Peter Sanfey (EBRD) and Anita Taci
This paper examines the conduct of monetary policy in Albania during the transition
period. We identify various channels through which monetary policy can affect prices
and output and we assess their relative importance. Estimates from a vector
autoregression model (VAR) of key macroeconomic variables demonstrate the weak
link between money supply and inflation up to mid-2000. However, the move during
2000 from direct to indirect instruments of monetary control has helped to strengthen
the predictability of
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CASE STUDY H&M
Fire safety is a major issue in Bangladeshi garment factories. Poor electrical installations and bad maintenance often create significant fire hazards. In order to make a safe workplace the norm throughout the sector, we think that it is essential to involve all stakeholders such as the government, industry organisations, trade unions and other brands.
This is why we developed two training films to increase fire safety awareness amongst employees at all levels in garment factories. We teamed up with 18 other brands and employer associations in the sector, BGMEA and BKMEA, to spread this training. According to BGMEA, more than 1,250 factories and 100,000
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Efectos de las importaciones/exportaciones en la Economía
De acuerdo con el método de los gastos del cálculo del producto interno bruto, PIB anual de una economía es la suma total de C + I + G + (X - M), donde C, I y G representa el gasto de consumo, la inversión de capital y el gasto público, respectivamente.
Si bien todos esos términos son importantes en el contexto de una economía, echemos un vistazo más de cerca a término (X - M), que representa a las exportaciones menos las importaciones o las exportaciones netas. Si las exportaciones superan a las importaciones, la cifra de las exportaciones netas sería positivo, lo que indica que el país tiene un superávit comercial. Si las
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The purpose of this essay is to fully understand macroeconomic by analysing these questions. All these issues are related to the concept of inflation. First of all, it will give a definition of inflation and list the measures of inflation. Then, it provides what is the difference between cost-push inflation and demand-pull inflation. Next, an explanation of conflict between the objectives of full employment and price stability is represented. Finally, it is to explain that stagflation pose a problem for demand management policies.
Inflation is an increase in the general (average) price level of goods and services in an economy. Inflation has positive and negative effects. It is noted
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In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. It is, often, one of the most unwanted and misunderstood of economic phenomena. We tend to believe that the prices of commodities will, over time, rise and fall, responding to the pulls and pushes of demand and supply. An unexpected decrease in the production of a commodity will lead to increase in the price of that commodity, just as an unexpected increase in the production will cause the prices to fall (cost push). Another reason for the price fluctuations can be attributed to an unexpected increase/decrease in the demand of commodities (demand
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Which of the following explains why the original Phillips curve relation disappeared or, as some economists have remarked, "broke down" in the 1970s?
Monetary policy became contractionary.
Individuals changed the way they formed expectations of inflation.
Individuals assumed that expected inflation would be zero
Individuals assumed the expected price level for the current year would be equal to the actual price level from the previous year.
More labor contracts became indexed to changes in inflation.
Which of the following will tend to occur when a high proportion of a country's
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Relationship between Inflation and Unemployment
Department of Business Administration
In partial fulfillment of
The requirement for the
Accepted by the faculty
FACULTY OF BUSINESS ADMINISTRATION
Mr. Tehseen Jawaid
Table of Contents
REVIEW OF RELATED LITERATURE
2.1 Theoretical background6
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, in an effort to achieve economic objectives of price stability, full employment, and economic growth.
Aggregate demand is the total demand for final goods and services in the economy at a given time and price level]It is the amount of goods and services in the economy that will be purchased at all possible price levels This is the demand for the gross domestic product of a country when inventory levels are static.
inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of
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What is Inflation and how it cause
Inflation is a rise in prices, leading to decline in the purchasing power of a country. Inflation is a normal
economic development, as long as the annual percentage remains low, once the percentage rise in
pre-determined level, it is considered inflationary crisis.
There are many causes of inflation, which depends on many factors. For example, inflation may occur,
excessive government printing money to deal with the crisis. Therefore, the price will eventually rise to
a very high speed to keep up with the currency surplus. This is called demand-pull, because the price is
high demand forced upward.
Another common cause of inflation is to increase
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Fundamentals of Macroeconomics Paper
June 9th 2014
Fundamentals of Macroeconomics
The global economy is a concept important to understand and mastering this concept is successful by analyzing the term macroeconomics. Macroeconomics a term that illustrates the economy as a whole by describing economics aspects in different countries around the World as opposed to microeconomics which contemplates countries in a singular fashion. The following paper speaks to terms surrounding macroeconomics and consumer economic issues like unemployment, inflation, and interest rates.
The Gross Domestic Product or GDP measures a societies manufacturing activities in
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The Economic Environment Facing Global Business
KEY MACROECONOMIC INDICATORS
• Economic Growth
• Surpluses & Deficit
KEY MACROECONOMIC INDICATORS : ECONOMIC GROWTH
• GDP and GNI (or GNP)
– High or Low
– total amount of goods and services produced in a year within the domestic territory) or GNI (GDP + net income)
– Per capita GNI (total GNI divided by total population)
– PPP GNI (unmber of units of a country’s currency required to buy the same goods and services in the domestic market that $1 will buy in USA
KEY MACROECONOMIC INDICATORS : INFLATION
• Increase in prices
• Inflation rate percentage increase in the change in prices from one period to another
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Inflation Climbs in India on Food Costs
Published: September 16, 2013
NEW DELHI — India’s main inflation rate hit a six-month high in August, driven by a surprise surge in food prices, hardening the case for the central bank’s governor, Raghuram Rajan, to keep interest rates high at his first policy meeting this week.
Food inflation accelerated to a three-year high of 18.18 percent in August, government data released on Monday showed, driving overall inflation to a higher-than-expected 6.1 percent.
Recent government moves to increase fuel prices also drove the jump in the wholesale price index, the price of a representative basket of wholesale goods.
Economists polled by
3755 words - 16 pages
Table of Contents
1. Introduction 3
1.1. Objectives 4
2. Literature Review 5
3. Methodology or Model 7
4. Data Sources and Construction of Variables 8
4.1. Contraction of Variables:- 8
5. Estimation Technique 8
6. Empirical Results 9
7. Conclusion 11
This paper attempts to investigate the linkage between the excess money supply growth and inflation in Pakistan and to test the validity of the view that inflation is a monetary phenomenon. The results from the analysis indicate that there is a positive association between money growth and inflation. The money supply growth at first affects real GDP growth and at the second round it affects inflation in
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STAT160-14A – Management Statistics
Simple and Multiple Regression
a) Produce a scatter plot using “Inflation” as the response (dependent) variable and “OCR” as the explanatory (independent) variable. Give a title to the plot, add axis labels and include a copy of this graph in your report.
b) Based on the scatter plot, describe the relationship between the explanatory and the response variable.
Inflation is given as the response variable and OCR is given as the explanatory variable. There is a curvilinear relationship between OCR and inflation rate. Also, although the points are spread out and are not clustered together, it can be seen visually
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Chapter 16: Extending the Analysis of Aggregate Supply
From Short Run to Long Run
* Short-run: a period in which nominal wages (and other input prices) do not respond to price level changes.
* Workers may not be fully aware of the change in their real wages due to inflation (or deflation) and thus have not adjusted their labor supply decisions and wage demands accordingly.
* Employees hired under fixed wage contracts must wait to renegotiate regardless of changes in the price level.
* Long-run: a period in which nominal wages are fully responsive to previous changes in price level
* Short-run aggregate supply curve: three assumptions:
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The study investigates the effects of Monetary policy on some significant economic variables like exchange rate, gross domestic product and inflation using data from 1960-2010 to analyze the results. We have taken the data in percentage form. A great number of empirical studies on the relationships of monetary policy and inflation are available and most of these have analyzed the effectiveness of monetary policy in controlling inflation in Pakistan. In this paper we have presented the effectiveness of monetary policy it’s framework and data estimation through which we reached to the conclusion that monetary shocks do affect real variables like GDP, inflation and exchange rate
657 words - 3 pages
How external forces effect the Australian economy
Real Gross Domestic Product is a measure of GDP. RGDP is an inflation-adjusted measure that reflects the final market value of all goods and services produced at the end of any given year, regardless to any change in price or purchasing power. The inflation rate is a measure of inflation and is the percentage increase in the price of goods and services expressed on a yearly basis. The inflation rate can be measured by observing the consumer price index and the GDP Price Deflator. The unemployment rate is a measure of unemployment. The unemployment rate is a percentage of the total workforce who is currently unemployed. Low rates are seen