5 February 2013 Econ 202

Result people will be reluctant to sign long term

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*result: people will be reluctant to sign long-term contracts o Price confusion: suppliers can’t discern the source of price increases Is it from demand or inflation? Price goes up Increase in demand – output should go up Buy new resources Build factory Hire workers Other resources Inflation – don’t change output
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All prices are affected *result: misallocation of resources Great Recession/Housing Market crash: increases in demand  and market activity was muddied by inflation o Money illusion: people interpret nominal changes as real changes Nominal wage: expressed in current wage Real wage: adjusted for price level changes Ex. Inflation in Argentina now is 30% 10% increase in wages would be an increase in nominal  wage, but a decrease in real wage because you’re not  even keeping up with inflation Earn revenue the day you start selling output Cause of inflation o Growth of the money supply o If the level of the money in the economy is growing faster than goods  and supplies you are going to get inflation Zimbabwe  Robert Mugabe
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03/06/2013 14:19:00
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03/06/2013 14:19:00
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