Monday 23 February 2009

Evaluate a question about economic

Question: All other things being equal, lower inflation in an economy is most likely to be achieved if there is an increase in
A: productivity.
B:exports.
C:consumption.
D:welfare benefits.
The answer is A
Because we know that inflation is an increase in price level so it means that demand is high. In this
question we know it is"lower inflation"which means the price level is lower and aggregate demand
too, but if exports are very high this means that injection is high, and the income of the
government will increase,as well as the income per capita, so they, in turn, will spend more money to buy products
,and the aggregate demand will increase,leading to a rise in inflation. So this is not correct.

The same reasons of consumption and welfare benefits, both of them are increasing the aggregate demand and thus an increase in inflation. So I choose answer A , which is productivity, because in order to decrease inflation we need to decrease aggregate demand , therefore,if produce more goods to
satisfy demand , the aggregate demand will go down,that is why I choose the first answer.

1 comment:

chris sivewright said...

"Because we know that inflation is an increase in price level so it's mean the demand is high."

NO.

:-((

It could be cost push

But, VERY WELL DONE anyway

:-)