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Predicting Inflation or Deflation

Compare the overviews from the following two articles to analyse whether inflation or deflation is more likely in the next two years.

1. Krugman, P. (May 3, 2009) Falling Wage Syndrome. New York Times. Retrieved May, 2009 from:

2. Meltzer, A.. (May 3, 2009) Inflation Nation. New York Times. Retrieved May, 2009 from:

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Article 1

As per the article, falling wages are the indicators of sick economic conditions and these can make the economy even sicker. For example, givebacks by the workers of Chrysler reflect the cut in wages. In addition, tentative agreements over the cut in salaries are the result of discussion took place between the union employees and employers. All these activities or trends show the brutality of weak labor market. It is so, as due to lack of job availability in the market, workers do not protest against the cuts in their wages by their employers (Krugman, May 3, 2009).

According to this article, wages have declined during 2009 sharply. As per the Bureau of Labor Statistics, in the 1st quarter of year, the average cost of employing workers rose up to only two tenths of percent that is the lowest rise as per the records of history. As per the articles, these trends clearly show the paradox of thrift that may result into depressed economic conditions. It can be also said that falling wages can contribute to stagnant economy. It can be also supported by the falling income of people that can also result into increased debt, which is not easy to payback.

Large levels of wage cuts are accepted by the employees to save their job. At the same time, it is also not avoidable that due to wage cuts, management is making the products more competitive and getting rise in sales. This competitive advantage and low wage is also resulting into employment, but only at the individual level. So, as per the article, it can be also argued that if every individual takes wage cut, the chances of getting competitive advantage become less, which results into no benefits for the economy. Therefore, it is ...

Solution Summary

The expert examines predicting inflation or deflation.