Why is unexpected inflation a societal problem?
Unexpected inflation is an issue because there is no time for the government or businesses to make price adjustments to counter inflation. If shop owners knew that inflation was coming they would be able to raise their prices accordingly. Since they cannot raise prices, the revenue they obtain from the goods they sell is worth less than what they expected. These firms, if you will, have not gained the same value from the goods/services they sold then they had in mind. Also the cost of living increases when there is inflation. Workers will not be paid as much but will need to pay more for the cost of living as their tax rate stays the same. People have less money and have to pay more...this truly is a societal problem.
Tuesday, October 23, 2012
Tuesday, October 16, 2012
GDP
What does GDP measure? And is it an accurate Macroeconomic indicator?
Gross Domestic Product is the measurement of the total price for all the goods and services produced, by a nation. GDP is most effective when it takes into account the rate of inflation because it can adjust to the value of the currency. GDP is a double edged sword when it comes to accuracy because although it tells us how much our country is producing it does not take into account other factors involved in the production of goods. All in all it is not an accurate indicator of macroeconomic success because it fails to take into account the environmental price of goods produced. By polluting a lake for business adds to overall GDP and cleaning up that lake adds to the GDP. However, fishermen who fish in that lake lose their market which lowers the overall GDP.
Gross Domestic Product is the measurement of the total price for all the goods and services produced, by a nation. GDP is most effective when it takes into account the rate of inflation because it can adjust to the value of the currency. GDP is a double edged sword when it comes to accuracy because although it tells us how much our country is producing it does not take into account other factors involved in the production of goods. All in all it is not an accurate indicator of macroeconomic success because it fails to take into account the environmental price of goods produced. By polluting a lake for business adds to overall GDP and cleaning up that lake adds to the GDP. However, fishermen who fish in that lake lose their market which lowers the overall GDP.
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