Why is indexing not commonly adopted in spite of the fact that it eliminates most of the wealth transfers associated with unexpected inflation?
Indexing is not frequently used because it can always worsen inflation. As prices go up, wages and certain other contractual obligations also automatically increase and this immediate and comprehensive reaction to price increases, leads to greater inflationary pressures. In addition, indexing does not allow relative prices to reflect change in relative scarcity.
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The Lucas critique is an attack on the usefulness of
A) conventional econometric models as forecasting tools. B) conventional econometric models as indicators of the potential impacts on the economy of particular policies. C) rational expectations models of macroeconomic activity. D) the relationship between the quantity theory of money and aggregate demand.
Of these policies, which is the best example of constrained discretion?
A) the annual federal budget deficit shall not exceed three percent of the GDP B) the growth rate of the money supply shall be between two percent and five percent C) macroeconomic policies shall promote rapid economic growth and low inflation D) macroeconomic policies shall aim to keep inflation — on average over each five-year interval — within a range of two percent to four percent
Using the aggregate expenditures model, if aggregate expenditures (aggregate demand) is $10 trillion and aggregate output is $10.3 trillion:
a. businesses will accumulate inventories, and output will decline. b. real output will increase if the full-employment capacity of the economy is greater than $10.3 trillion. c. inflation will be a problem if the full-employment capacity of the economy exceeds $10.3 trillion. d. both b and c are correct.
Government intervention in the economy with the goal of promoting technology-producing industries is known as patent policy
a. True b. False Indicate whether the statement is true or false