What, If Any, Is The Link Between Inflation And Output In Your Essay

What, If Any, Is The Link Between Inflation And Output In Your countersign Refer To Both Theoretical And Empirical Evidence - Essay ExampleWhen prices of domestic goods and services ar rising fast this will generally be true also of wages, of the prices of the imported goods, of the money translate and of the prices of assets. This is because inflation is one sector of the economy permeates rapidly into other sectors. The phrase a high order of inflation therefore usually describes a situation in which the money values of all goods in an economy are rising at a fast rate . The view commonly interpreted is that inflation should be kept close to zero prices should rise at no more than some 2 to 3 percent a year on average. This is because high inflation affects the economy adversely in a number of ways. For example, it distorts the income distribution because of the difficulty and risk associated with the complete index-linking of pensions tend to suffer. Also, it biases investmen t decisions the be of borrowing money rises making debt finance expensive in the early years of a stand out and reducing the incentive to invest. In theory inflation accounting could correct for this, but in utilization this has proved difficult to implement.