ECO 1302 Lecture Notes - Lecture 42: Gdp Deflator, Deflate
26 Dec 2017
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Document Summary
The tax system is impacted by inflation since it simply taxes nominal interest charges (and capital gains), regardless of how much real interest (real profit) it represents. These costs of inflation are not purely redistributive. Society as a whole loses when mutually beneficial transactions are prohibited by dysfunctional legislation. The uncertainty created by inflation may inhibit long-term contracts. Inflation may impose real costs on shoppers, whose level of information about relative prices deteriorates. The costs of low versus high inflation. It is steady (and therefore relatively predictable) rather than variable. Low inflation does not necessarily lead to high inflation. Creeping inflation sometimes accelerates, but it sometimes decelerates. While creeping inflations have many causes, galloping inflations have occurred only when the economy has faced tremendous economic dislocations. The price index is a measure of the cost of a basket of goods in a current year, Index numbers for inflation relative to the cost of the same basket in a base year.
