At present the amount of goods and services available for purchase is tumbling. When there's a surge in demand for goods across an economy, prices increase, and the result is demand-pull inflation. Central banks of developed economies, including the Federal Reserve in the U.S., monitor inflation. Learning Objective: 18-02 Discuss how to apply the "extended" (short-run/long-run) AD-AS model to inflation; recessions; and economic growth. The increase in money available throughout the economy leads to more spending and demand for goods and services. While consumers experience little benefit from inflation, investors can enjoy a boost if they hold assets in markets affected by inflation. Companies also play a role in inflation, especially if they manufacture popular products. This result is consistent with various contributions 2 to the current debate on inflation and potential biases of it during the Covid-19 crisis. Inflation in the short run is most likely to result from a (n): A. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product. If the economy is performing well and housing demand is high, home-building companies can charge higher prices for selling homes. Falling employment A dollar will buy more than it did before People are discouraged from holding cash Price Stability Low aggregate output per ca - the answers to estudyassistant.com Many service industries are … Typically, inflation results from an increase in production costs or an increase in demand for products and services. Cost-push inflation is caused by a decrease in aggregate supply. The asset inflation that results can drive widespread price increases. A wage-price spiral is a macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. Experts believe retail inflation is likely to average around 6.3 per cent this fiscal and mostly will remain sticky going forward owing to pick-up in demand across sectors. Rising inflation expectations aren’t likely to kill the stock rally. There are a few metrics that are used to measure the inflation rate. Hyperinflation describes rapid and out-of-control price increases in an economy. Wages also affect the cost of production and are typically the single biggest expense for businesses. If foreign competition, for example, is unaffected by the production cost increases, their prices wouldn't need to rise. Inflation in the short run is most likely to result from a(n): Increase in aggregate demand or aggregate supply, Decrease in aggregate demand or aggregate supply, Increase in aggregate demand or a decrease in aggregate supply, Decrease in aggregate demand or an increase in aggregate supply. Some companies reap the rewards of inflation if they can charge more for their products as a result of a surge in demand for their goods. Companies are at risk if they're unable to pass on the higher costs to consumers through higher prices. In indications of supply chain bottlenecks, wholesale price-based inflation was mostly benign this year, touching a low of (-) 3.37 per cent in May and a maximum of 3.1 per cent in January. One of the signs of possible cost-push inflation can be seen in rising commodity prices such as oil and metals since they're major production inputs. Inflation erodes a consumer's purchasing power and can even interfere with the ability to retire. If homes are in demand because the economy is experiencing an expansion, home prices will rise. Try our expert-verified textbook solutions with step-by-step explanations. Answer: 2 question Which of the following is the most likely result of inflation? And last but not least, built-in inflation is caused by people’s expectations of future inflation. The offers that appear in this table are from partnerships from which Investopedia receives compensation. The demand also impacts ancillary products and services that support the housing industry. INFLATION is likely to make a comeback in 2021 after a deflationary trend this year as the Covid-19 pandemic supressed demand for goods and services. Typically, inflation results from an increase in production costs or an increase in demand for products and services. CPI inflation picks up to materially above the MPC’s 2% target by the end of the forecast period. Cost-push inflation occurs when overall prices rise (inflation) due to increases in production costs such as wages and raw materials. Watch for inflation to increase as the dollar weakens further in 2021. Deflation, Not Inflation, is Likely To Result From Current Commodity Price Hikes Trenton, NJ (PRWEB) September 20, 2005 -- If you are old enough to remember the America of the 1970s, then you probably remember those inflationary days when It is a consequence of the relative weight shifts, and particularly driven by the relative increase in consumption of “Food & Non-Alcoholic Beverages”, which are more inflationary than other spending categories. Companies, in turn, increase wages to attract qualified candidates, causing production costs to rise for the company. Another measure of inflation is the Producer Price Index (PPI), which reports the price changes that affect domestic producers. If the company raises prices due to the rise in employee wages, cost-plus inflation occurs. Crudely put, inflation is the result of too much money chasing too few goods. The demand for goods is unchanged while the supply of goods declines due to the higher costs of production. Asset and wage inflation are types of inflation. Inflation is a measure of the rate of rising prices of goods and services in an economy. For example, if an investor earned 5% from investments in stocks and bonds, but the inflation rate was 3%, the investor only earned 2% in real terms. Consumer confidence tends to be high when unemployment is low, and wages are rising—leading to more spending. Sustainable inflation is not expected to return to Australia for the next couple of years, according to economists, who say spare capacity in the labour market and … Terms. During wars, government buys large amount of output and acts as an employer of first resort. A company can raise prices simply because consumers are willing to pay the increased amount. The housing market, for example, has seen its ups and downs over the years. On a month-on-month basis, … Get custom essay for Just $7 per page Post Your Question Now. University of Tennessee, Martin • ECON 201, Chattahoochee Valley Community College • ECON 101, Minnesota State University, Mankato • ECON 529, Copyright © 2021. The result is higher prices for consumers without any change in demand for the products consumed. If a government cuts taxes, businesses may spend it on capital improvements, employee compensation, or new hiring. In this article, we'll examine the fundamental factors behind inflation, different types of inflation, and who benefits from it. Inflation can be a concern because it makes money saved today less valuable tomorrow. When the economy is performing well, and the unemployment rate is low, shortages in labor or workers can occur. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. High inflation has reduced disposable income for people, as they pay more to buy the same set of goods and services. Economic expansion has a direct impact on the level of consumer spending in an economy, which can lead to a high demand for products and services. As a result, the added costs of production are passed onto consumers in the form of higher prices for the finished goods. “Inflation will be noisy next year with likely head-fakes in the data. There are various factors that can drive prices or inflation in an economy. B) decrease in aggregate demand or aggregate supply. Marketing and new technology create demand-pull inflation for specific products or asset classes. Natural disasters can also drive prices higher. As a result, excess demand and domestic inflationary pressures build. This preview shows page 22 - 24 out of 48 pages. Inflation in the short run is most likely to result from an A Increase in, 118 out of 131 people found this document helpful. “I don’t think this is the result of any significant policy errors,” said Hugo Erken, head of international economics at Rabobank in Utrecht. Find answers and explanations to over 1.2 million textbook exercises. Also, business owners can deliberately withhold supplies from the market, allowing prices to rise to a favorable level. Inflation has been consistently over 6% over the last few months on account of rising food prices and supply constraints. Inflation describes an increase in the overall price level of goods and services within an economy over a certain period. Inflation if it 's the result of a shake-up to how inflation is most to! Faster than the production cost increases, their prices would n't need to rise stock rally amount discretionary... As food, it will be reflected in the data been consistently over 6 over. 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