Questions tagged [inflation]

Inflation is generalized increase of prices of goods and services in an economy, along with a corresponding fall in the purchasing value of money. The rate of inflation refers to the increase of the price of goods and services over time.

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Inflation and Interest rates in US. Is it in between a rock and a hard place?

There is no secret that our government(both republican and democrat) will need more money than they collect from taxes to pay their bills. The public debt is getting close to 30 TRILLION and the ...
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Imports/Exports in the equation of exchange

From the equation of exchange: $MV=PY$, where $M$ is the money aggregate, $Y$ is the real output, $P$ is the price level and $V$ is the velocity of money, we derive $\% \Delta M + \% \Delta V = ...
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What is the difference between “borrowing” money and “printing” money?

When a country's government has a budget shortfall, that country has to find some way to pay its contractors/emplooyees. Unlike a normal company, the government can't simply go to the bank and ask to ...
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459 views

Calculating Real Budget Deficit, given Nominal Deficit and Inflation

I am doing this course on Coursera. In the context of explaining what Budget Deficits are, the professor puts up the following formula: Real Deficit = Nominal Deficit - (Inflation*Total Debt) My ...
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35 views

Why are the YTMs of TIPS of longer maturities more sensitive to current interest rates and inflation rates?

According to this website, the yields of TIPS of longer maturities are greater than that of TIPS of shorter maturities. It seems counterintuitive since yields of longer-maturity bonds, which are based ...
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33 views

How has decreasing quality (or the need to pay more for the same quality) tracked with inflation?

I'm trying to identity a missing variable that could affect poor and middle class consumers more than more wealthy/resourceful individuals. Assuming that there are decisions regarding cost reductions ...
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42 views

For stability, is there a limit to the sovereign debt that a Government owes to itself against issued fiat currency?

Looking beyond the optical illusion of Governments owing debt to Central Banks, Governments effectively owe themselves the sovereign debt created against issued fiat currency. By definition, there ...
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Why don't Governments do away with the optics of taking on debt against new currency, and instead issue a limited currency every year (say 5% of GDP)?

Governments engage in the optical illusion of taking on debt against issued currency. The debt is effectively owed by the Government to itself. The value of the debt is completely controlled and ...
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Real Income and a Fixed Money Supply

What would happen to nominal income and wages if the money supply were fixed (100% reserve banking). Would real wages increase, even though nominal wages would stay the same or even decrease?
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Oliver Hart said that financing deficits by printing money can lead to hyperinflation “once the economy is close to full capacity”. What does he mean?

In response to a poll on Modern Monetary Theory, Nobel Laureate Oliver Hart said that Governments financing deficits by printing more money "can quickly lead to inflation or even hyperinflation ...
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Small vlillage impact on Inflation

Let's suppose we have the opportunity to print unlimited money and give each of the 1,000 inhabitants of a small village $100,000 per person. Does this action boosts the inflation of the country? How ...
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Why should prices come down (in theory) in an educated society with a well-run government?

In Chapter 1 of Robert Kiyosaki's "Rich Dad, Poor Dad", the rich dad says: "In an educated society with a well-run government, prices should actually come down". Is there any ...
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54 views

Does inflation equal change in M1 or M2?

According to monetarism, inflation can be predicted precisely by the change in money supply and GDP growth. Does "money supply" here refer to M1 or M2, i.e. does it include debts created by ...
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How is high liquidity created and how can it affect a country's economy?

It is said that Iran struggles with high liquidity and I've heard that it's one of the reasons behind its hyperinflation. Please explain in layman's terms: Why is high liquidity created and what ...
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49 views

Is there an alternative to currency to facilitate exchange of goods and services?

Say I have collected a bunch of seashells. Tom wants to have my seashells. Therefore the seashells have value and I have just created wealth. And so Tom buys my seashells for \$10. But even though I ...
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64 views

Cost-push inflation and labour shortage

Is it possible for there to be a shortage of labour in an economy when there is cost-push inflation?
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159 views

inflation rate vs interest rate on calculating present value of future money

i use the formula 100/(1+r)^T to calculate the present value of my future money while r is interest rate and T is year. However , for my country , interest rate (...
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Are government bonds ever profitable

With most government bonds having interest rates being rather low, (0.254%) This being a whole 1.75% below target inflation (To clarify all rates are UK rates, and UK target inflation is 2%), and 1.54%...
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28 views

How to calculate inter-annual variation of inflation for a 3 months period?

I have the monthly indexes taken from the National Institute of Statistics of my country (below), then I can calculate its inter-annual variation easily: ((index month year - index same month year - ...
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1answer
129 views

Printing money to put into a Superannuation or UBI fund

It is fiscal policy to keep inflation at between 1-2% (in New Zealand at least) Various tools are used to keep inflation in this range. Let's say the average inflation rate is 1.25% What would ...
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Did real incomes drop significantly since the 1950s?

From what I heard, in 1950s America, you didn't have to go to college to support a large family and a stay-at-home wife. People could buy houses easily, drove giant cars and didn't worry about gas ...
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Lucas' islands model and a firm's profits

I was doing some reading on Lucas' islands model and how aggregate supply can change depending on agent's expectations regarding monetary policy. It's always assumed that there are "n" ...
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What would cause the velocity of money (V) to increase / accelerate (or at least stop falling)

Given that: MV=PY Or P = (M)(V) / Y Where M is the money supply, V velocity of money, P price level and Y real GDP Considering that the current rate of M2 is increasing at 7% per year over the ...
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What is the point of monetary policy if most monetary variables are determined by non-monetary factors?

Monetary policy today is largely focused on setting interest rates in order to reach an inflation target / value of the currency. Interest rates are used to affect inflation by changing the demand and ...
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New Keynesian Phillips curve with time-varying elasticity of demand

I am looking for a paper or notes which derive the New Keynesian Phillips curve with Calvo price staggering and time-varying elasticity of demand (i.e. markup shocks). Specifically, I am trying to ...
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Can PPP adjusted values be compared over time?

I'm a little baffled about this: Let's say I want to compare the average income of 2 countries, A and B. Of course I'm interested in the real income so I adjust to PPP using the big mac index of that ...
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Political theories of inflation

A recent op-ed (paywall) in the Financial Times about inflation stated that (emphasis mine): Across the developed economies, the Phillips curve has gone ignominiously flat. The world's leading ...
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58 views

Expected inflation in the real interest rate equation

Real interest rate = Nominal rate - Expected inflation In the above equation, in a quarterly data-set, which expected inflation shall be used? next quarter (q+1) or the same quarter of next year (q+4)...
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Did a similar property boom take place in another country or throughout history like we have seen in London? If so how did it effect the economy?

The London property market has seen a sharp increase in the average house price. If we go back to the 70's the average UK and average London price were almost the same, however since than the gap has ...
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What would happen in a modern economy if growth plateaus?

According to a Wikipedia article on a United Nations report, The UN Population Division report of 2019 projects world population to continue growing, although at a steadily decreasing rate, and to ...
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147 views

Does real GDP control for changing preferences?

This claims that real gdp does not account for changing preferences. However, if preferences were to change for sneakers and subsequently pushes the price up, won't this be reflected in the changed ...
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312 views

How do you stop Hyperinflation in a Nation?

In history, I learned that the Weimar Republic had hyperinflation as a consequence of leading and striving war during World War I and placed a new currency named German Rentenmark which would be about ...
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Can printing money with simultaneous government intervention to increase supply prevent inflation?

Just as above...If we print money and simultaneously introduce some sort of government intervention in order to increase supply/ production, then supply and demand would be 'balanced' and therefore ...
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Would a Federal Job Guarantee hurt the economy?

I've been reading about how a job creation program would disrupt the private sector. One of the main things I kept seeing was that the a FJG will result in the elimination of thousands of jobs. So, ...
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53 views

Intuition for effect of interest rate changes in New Keynesian model

I am trying to understand the intuition behind the effect of an interest rate change in a simple New Keynesian model (or really in any sticky price model). As a simple example, I take (roughly) the ...
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26 views

CPI dataset from BLS

I hope this question is not inconvenient for any of you, so I would appreciate if you do not mark it as not useful. I want to work with the data of the CPI from the BLS (I am not American, and this is ...
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Debt-to-GDP ratio in connection to inflation

On this segment of the Tucker Carlson show, interviewing Robert Hockett, as an advisor to Rep. Octavio-Cortez on the proposed Green New Deal, the following interchange ensues: Tucker: "On the ...
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3answers
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The law of supply and demand - How does it work?

I've learned what the principle of supply and demand says, and would paraphrase it like this: The price of a good is at equilibrium when supply and demand are equal. Or with other words: The price ...
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If the price of oil and energy goes down, why does CPI go up?

Today, StatsCan revealed that Canada's CPI rose by 1.3%. They are attributing it to lower energy prices, led by the fall in the gasoline index (down 12.6% since one year ago). From my understanding, ...
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Calculating the amount paid for a loan in today's dollars

So I was trying to figure out the amount paid for a loan in today's dollars using two different methods but they give me different results. I was hoping that someone could explain which method is ...
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Is a loan lent with a rate under the inflation rate free money?

Suppose we have an inflation in a country with an annual 2% and we get a loan for an annual 1% (real interest). Is the money we receive free? This is a common practice in some European countries, ...
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Why aren't house prices included in CPI?

Swedens central bank recently lowered their prime rate to -0.25% from -0.10% in an effort to avoid deflation. At the same time, house and apartment prices are higher than ever, up 11% last 12 months,...
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Why will inflation raise sellers' purchasing power?

According to my textbook, in the chapter on inflation, "When a price rises, buyers of that good must pay more, but sellers get more revenue when they sell it. The loss in buyers' purchasing power is ...
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1answer
49 views

Why Keynesians prefer short run measures despite straight long-run Phillips curve?

I was studying about the Monetarists' and Keynesians' view of the Phillips curve and natural rate theory of Friedman. It seems intuitive to me as to why Friedman argues that using an expansionary ...
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How would a global Robin Hood deed affect the economy? [closed]

In one fiction series about a dystopian world, a small group of wealthy criminals owned a large fraction of the world's cash, which was on their bank accounts in a single offshore bank. In the happy ...
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Could you solve inflation by creating more goods?

If inflation is caused by there being more money to comparison to goods, if you increased production of goods to match the pre-inflation ratios of money to goods, would you effectively solve inflation?...
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What is meant by an inflation rate spoken in the typical news?

The news usually says that inflation for a certain month is say $2.57\%$. It is never said relative to what. Should I assume that is relative to the previous month? If that's so, then the more ...
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Could eliminating all taxes and only creating new money theoretically work?

Imagine you had the opportunity to found a new country from scratch (in 2020). Value exchange would be digital, where only the state can create new currency units. Instead of relying on income tax ...
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What is the ideal way to update an old value to today's currency value?

For example, how much is $25 million in 1790 considered today? How do I update such value? It doesn't make sense to me to use, say, price indices. Shouldn't such update be done based on the ...
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real exchange rate formula doubt

Real exchange rate formula is the exchange rate multiplied by the ratio of two prices. what does this ratio actually imply? What is the rationale behind taking the ratio?

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