ECON 2 Lecture Notes - Lecture 24: Aggregate Demand, Quick Ratio, Money Supply

• School: Irvine Valley College
• Department: Economics
• Course: ECON 2
• Professor: colins

Document Summary

Income and wealth are redistributed arbitrarily, for inflation imposes a tax on those who hold money as opposed to those holding real assets. Inflation reduces the standard of living of persons dependent on fixed incomes, for example, pensioners. Interest rates rise, both because people require a higher reward for lending money which is falling in value and also because the government is forced to take anti-inflationary measures. Investment is discouraged by government anti-inflation policy. In practice, controls imposed on prices are more effective than those on costs, particularly those on wages. The result is discouraged because postponing consumption simply means that goods cost more if bought later. Inflation encourages speculation by the purchase of real assets by borrowing rather than investment by the use of resources in production. Indeed inflation discourages investment in long-term projects because possible government anti-inflation policies are difficult to forecast.