ECO102H1 Lecture Notes - Micro-Star International, Fallacy, Money Supply

• School: UTSG
• Department: Economics
• Course: ECO102H1
• Professor: James Pesando

Document Summary

Ca: 2. 2% u. s. 2. 1% china 4. 9% india 8. 1% euro area 2. 1% Current inflation rates (temporarily) high because of high food, commodities (oil, etc) prices. The fallacy: inflation robs people of the purchasing power of their incomes. . Reality: if price level doubles (inflation of 100%) then incomes in total must double as well. [100% inflation] now mary pays john to mow lawn. Problem: if price level doubles, not everyones income will double; Workers, firms: concern is with real level of wages. Inflation = 5% real wage increase = 5% - 5% = nil (not 2%) ; workers lose, firms gain; Inflation = 1% real wage increase = 5% - 1% = 4% (not 2%); workers gain, firms lose; Q: lend for 1 year at 10%; interest: x 0. 10 = ; If inflation is 5%, must increase by to ,050 to purchase same basket of goods and services;