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Essentials of Economics 7th Edition by Gregory Mankiw
Edition 7ISBN: 978-1285165950Essentials of Economics 7th Edition by Gregory Mankiw
Edition 7ISBN: 978-1285165950 Exercise 1
If a nation has high and persistent inflation, the most likely explanation is
A) the central bank creating excessive amounts of money.
B) unions bargaining for excessively high wages.
C) the government imposing excessive levels of taxation.
D) firms using their monopoly power to enforce excessive price hikes.
A) the central bank creating excessive amounts of money.
B) unions bargaining for excessively high wages.
C) the government imposing excessive levels of taxation.
D) firms using their monopoly power to enforce excessive price hikes.
Explanation
Verified
Verified
Inflation:
Inflation refers to an increase in the overall level of prices in the economy. Inflation is caused by increase in the quantity of a nation's money.
Reason for high and persistent inflation:
Money is created by the central bank. They print the currency required by the system. This money is then multiplied by the financial system. In other words, inflation goes up when money supply increases and the number of things available for sale do not go up as required.
Hence, the option 'a' is correct.
Inflation refers to an increase in the overall level of prices in the economy. Inflation is caused by increase in the quantity of a nation's money.
Reason for high and persistent inflation:
Money is created by the central bank. They print the currency required by the system. This money is then multiplied by the financial system. In other words, inflation goes up when money supply increases and the number of things available for sale do not go up as required.
Hence, the option 'a' is correct.
Essentials of Economics 7th Edition by Gregory Mankiw
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