The perils of falling inflation - Article Example

Download file to see previous pages... America also suffered the same consequences as Europe, where it was reported in September that the inflation rate dropped from 2% to 1.2% in July, and it has stayed like that for a period of time, this led Federal Reserve propose to loosen the monetary policy, they argued that this policy was working with other economies such as Japan which had not experienced low inflation for the last 15 years. Britain was seen as the only rich economy where inflation rate was doing well on an average of 2.7% overall. Therefore, this article studies the relationship between macroeconomic variables and the circulation of income in rich economies such as Europe and America. This can be the best method of stabilization when it comes to issues of policies in any given economy (Addison 1987).it Experimental analyses has received very little concentration among macroeconomists Disaggregate variables are analyzed to recognize the repercussion of restriping the macroeconomic models, but they are not measured as alternative helpful information. The paper tries to determine which common aggregate variables explain the pattern of relationship among individual income and macroeconomic shocks. The paper uses several measures of macroeconomic shocks which include Gross National Products (GNP) growth, real devaluation rate, unemployment, and inflation rate. All the indicators seem to affect income inequality to some extent, higher inflation reduces sectoral and education income for all populations. Aggregate variables to consider in the paper are displayed in the figure 1 below. Figure 1: Dynamic index models, sectoral income Gross National Product (GNP) (I) Surveys show consumers still expect medium term inflation to be at their reach or above the central bank’s target of 2%.but if the economy will experience high unemployment, wages and prices are eventually likely to fall. Ultra-low inflations have dangerous effects, where it tends to go with weaker economies and higher than necessary joblessness. For example, America unemployment rate is 7.2%, Spains26.6% and France 11.1%.this means that the nominal incomes will experience slow growth than when the prices would have raised. This pushes household and governments debts impossible to pay, especially to economies with a single currency. Trade liberation mostly touched on exports promotion and imports liberalization, with reduction in tariffs for imports and attractive incentives for foreign Investments, will be an advantage to countries with a single currency like Spain and Italy to compete with big economies such as Germany with the inflation rate of 1.3%, which undermines it ability to combat more recession. This lead to the increase in fixed investments up to 30% and over as indicated in Figure 1.the changes reflects to have an increment or rise of the unemployment rate, although a recovery in economic activities would be realized after implementation of the reforms .most Rich ...Download file to see next pagesRead More