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Inflation

Help in answering these questions. Answers should be 250-300 words each.

1 Inflation is the general increase in prices with some prices rising faster than average and even some prices falling. Inflation attracts a great deal of attention among policy makers and some of the remedies for it can have serious consequences in production and employment. Why would you, as a business manager, care whether annual inflation is 2% or 20%?

2 What are some of the damaging effects deflation has on an economy? What would be a monetary policy prescription to reduce or eliminate deflation? How would deflation affect your business?

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1 Inflation is the general increase in prices with some prices rising faster than average and even some prices falling. Inflation attracts a great deal of attention among policy makers and some of the remedies for it can have serious consequences in production and employment. Why would you, as a business manager, care whether annual inflation is 2% or 20%?

As a business manager, I would be concered about inflation has several negative impact on the profitability of the business. First of all, inflation erode the purchasing power of people. If real income does not rise with inflation, consumer's purchasing power will be erodes and hence, businesses will suffer due to less demand for products and services in the economy.

Secondly, erosion of real income among the workers will force them to demand for higher wages and salaries during inflation, thereby causing wage rise related pressure on the organizations. Workers will put more pressure on the companies to raise wages for ...

Solution Summary

Inflation is the general increase in prices with some prices rising faster than average and even some prices falling. Inflation attracts a great deal of attention among policy makers and some of the remedies for it can have serious consequences in production and employment. Why would you, as a business manager, care whether annual inflation is 2% or 20%?

$2.19