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What would the government do if the inflation rate is too high?
Wiki User
∙ 14y ago
The government would aim to constrict money supply in the economy and impose deflationary measures.
MV = PY
Where M=Money supply, V=Velocity of spending, P=Price Level and Y=Quantity of Output.
Assuming that V and Y are constant values in the short run, by constricting M, P therefore falls, meaning disinflation would be experienced.
This could be achieved by a raising of interest rates (prompting increased saving) or increased tax (reducing average wealth). Although it could be argued that increasing interest rates attracts hot money into an economy, which would raise the exchange rate and increase MPI, which in itself is inflationary, these effects are negligible when compared to the impact that the change in rate has on spending within the domestic economy.
Wiki User
∙ 14y ago
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What is an acceptable inflation rate?
Each government will have a set target with which the inflation rate should lie. For example, in NZ the inflation rate target is 1-3%.
If policy makers are worried about inflation what would be a correct fiscal policy change?
A fiscal policy solution to inflation would be to either increase taxes or decrease government spending.increase the tax rate
Is the national inflation rate reported by the government closer to what percent?
5%
Who is in charge of regulating the national inflation rate?
The government or an appointed central banker
What is the inflation rate in Texas?
current inflation rate in harris county
What is an acceptable inflation rate?
Each government will have a set target with which the inflation rate should lie. For example, in NZ the inflation rate target is 1-3%.
When you are earning interest is it better to have high or low rates?
High rates.However, high interest rates are usually a consequence of high inflation rates and so what matters is not the interest rate but the real interest rate which is the nominal interest rate relative to the inflation rate.Thus a 3% interest rate when inflation is 1% is better that a 5% interest rate when inflation is 4%.
If policy makers are worried about inflation what would be a correct fiscal policy change?
A fiscal policy solution to inflation would be to either increase taxes or decrease government spending.increase the tax rate
What kind of influence would high inflation rates have on typical consumers?
High inflation rates would make it difficult for consumers to buy essential needs. If wages do not increase at the same rate, it would be very difficult for the average person to survive.
Is the US experiencing a high inflation rate?
No, we are actually experiencing a low rate of inflation. In 2009 there were 8 months were we actually saw deflation.
Is the national inflation rate reported by the government closer to what percent?
5%
Impact of recession?
high interest rates such as the repo rates and high inflation rate
Who is in charge of regulating the national inflation rate?
The government or an appointed central banker
What is the inflation rate in Texas?
current inflation rate in harris county
What is walking inflation?
Walking inflation: When the price rise is moderate (is in the range of 3 to 7 %) and the annual inflation rate is of a single digit, it is called walking inflation. It is a warning signal for the government to control it before it turns into running inflation.
Why the inflation rate is calculated?
Inflation is measured by calculating the percentage rate of change of price index, which is calledthe inflation rate. The rate of inflation is usually expressed in annualised term, though the measurment periods are usually different from one year. Inflation rate= p - P /P *100 i.e, p minus P divided by P into100. Where, p= current average price level, P= price level a year ago.
Cola raises are linked to?
The Cola raises is linked to high inflation rate and the high cost of living.
