1. Do you think that inflation imposes a net cost to the economy after consideri

Question

1. Do you think that inflation imposes a net cost to the economy after considering the gains and loss? If so, which type of cost? Discuss each scenario below.

a) Bill gets paid more frequently and thus has to make more trips to the banks down the road, when inflation is expected to be high.

b) Bill gets reimbursed by MIT for his work-related expenses. However, sometimes it takes longer time to reimburse him (quite often in reality!). When inflation is expected to be high, he is less willing to travel for his job.

c) Responding to unexpectedly high inflation, the manager of the Sofitel Hotel must reprint and resend expensive coloured brochures correcting the price of the accommodation in this season.

Explanation / Answer

a)

Here, Bill being paid for rise in inflation. Thus, he is being compensated for increased level lf inflation. Cost of vising banks is likely to to be less than the increased payments. Thus, new gain is accrued here.

b)

Here, inflation will affect the Bill work adversely. He may leave to travel for his job due to rise in inflation. Hence, it will affect economy adversely.

c)

Manager has to make more expenditure on replacing or reprinting colored brochure. it will increase cost of hotel. Further, net gain will depend on sale of hotel. Economy will suffer loss if demand falls.

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.