http://www.nytimes.com/2010/01/17/business/economy/17view.html
This article discusses the expectations for inflation in the near future. Since the government is pushing for rapid economic growth we expect that there may be high inflation coming around the corner . The worry begins with the fact that in the past when the government has attempted to get the economy out of recession by encouraging rapid growth it lead to hyperinflation. I personally think that we should want some inflation now. With higher inflation the real wages would decrease and we can put more people to work as long as the nominal wages remain the same or increase. This would help bring down the unemployment closer to its natural rate. If all this happens there will be more people with jobs and therefore more people with money to spend. The problem with this scenario could be that since more people have money to spend hyperinflation will naturally happen and that is why the government would have to carefully increase income taxes and interest rates.
Personally speaking, I don't agree with you. Although the increase in inflation rate does have influence on the decrease of unemployment rate, but this may cause a lot more problem, since the economy is a whole and we cannot only focus on part of it. The high inflation may cause the unstable not only in economy, but also in the society. Plus, although theoretically, the increase of inflation do have corresponding relationship to the decrease of unemployment, the real thing is, does the rate keep on the same? The reason that the sudden increase of inflation creates more job is because people have few expectations to the wage rate while the firms could gain more profit. But in the long run, it will still go to balance with a higher price level. What's more, in the high inflation, price goes high, and people will claim for higher wage to fix it. But the real thing is the wage is not always easy to go high. In this case, the life of people is even worse. Whether to let the CPI go up freely or take some measure to control as appose to the unemployment still need more consideration.
ReplyDeleteFirstly, I'd like to compare the United States' deficit to another developed country with a similar deficit percentage of GDP.
ReplyDeleteCurrently, Greece's national deficit is 13% of their GDP. As a member of the European Union, they must maintain a deficit of 3% of their GDP or lower. Although most political analysis commenting on this issue does not believe that the EU will kick Greece out, the EU has clearly stated that they will not help Greece 'fix it'. The dilemma and its implications are causes for worry throughout Europe.
As quoted in the article, the U.S.'s government budget deficit is 11% of its GDP. This is strikingly close to Greece's.
Although anyone who pays attention would have to already know that our national deficit is extremely high, this article does not stress that fact enough. Greece, with a deficit percent a mere two points higher than ours, has the potential to be kicked out of the prominent government of Europe. This is obviously a point that is worth stressing.