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Chapter 32: Q. 19. (page 782)

Is inflation likely to be a severe problem for at least some high-income economies in the near future?

Short Answer

Expert verified

High income economies doesn't impact severely due to inflation in near future.

Step by step solution

01

Step 1. Meaning of inflation.

A general progressive increase in the prices of goods and services in an economy is known as inflation. It causes the purchasing power of money to decline.

02

Step 2. Explanation

Inflation can disrupt the economies of many countries by quickly wiping out the value of money in the country. But this inflation doesn't impact severely to high-income economies shortly because:-

a) High-income economies will index the wage levels and interest rates to inflation.

b) Their central bank can control inflation in the medium and the long term.

c) They have learned that inflation has no long-term benefits but potentially substantial long-term costs if distracts businesses from focusing on real productivity gains.

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