1. A) Why is a period of prolonged deflation especially bad for investors? B) Wh
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Question
1. A) Why is a period of prolonged deflation especially bad for investors? B) Why is a period of prolonged deflation especially bad for hourly wage workers? C) Why is a period of prolonged deflation especially bad for production decision making managers? D) Why do economists look at Real GDP rather than just nominal GDP? E) Why do developing countries like Mongolia, India or Malaysia often have much higher Real GDP growth rates than the US or Germany? F Why might the GDP deflator method of calculating inflation be preferable to using the CPI?Explanation / Answer
A)
Prolonged deflation implies the recession in economy which is characterised by the fall in aggregate demand. Hence, prospective profits also fall. Hence, deflation is bad for investors.
B)
Prolonged deflation reduces demand and fall in demand reduces the demand for hourly wage workers. Thus, they have hard time to find out new jobs.
C)
Production decision making managers could not clear their investories easily and hastily. Thus, find hard to make pro profit decisions.
D)
Real GDP provides information about the actual rise in production of goods and services. While nominal GDP may rise even without actual rise in production of goods and services. Nominal does not provide correct information about the growth of economy. Thus, economist look at real GDP.
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