Inff Essay

646 WordsDec 5, 20113 Pages
Commentary In the article Inflation picks up in U.S. and San Diego, by Dean Calbreath in the San Diego Union Tribune on February 18, 2011; talks about how the national prices rose 0.4% in both December and January, since the 1.6 percent rise last year. And how in San Diego the prices rose 1 percent. Most of it because of the food and energy costs. Also besides that Medical care and Air fares raised it one percent. And they fear that price rises might just be accelerating. Since we are having inflation, which is the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling. So basically every dollar we use would buy less of something. For example, if inflation is 2% then a $1 pack of mints will cost $1.02 in a year. Which causes Aggregate demand (The total amount of goods and services demanded in the economy at a given overall price level and in a given time period. It is represented by the aggregate-demand curve, which describes the relationship between price levels and the quantity of output that firms are willing to provide. Normally there is a negative relationship between aggregate demand and the price level. Also known as "total spending") to go down. And aggregate demand has four determinants. Change in consumer spending (consumer wealth, consumer expectations, household indebtness, and taxes), change in investment spending (interest rates and expected returns [ expected future business conditions, technology, degree of excess capacity and business taxes ]), change in government spending and change in net export spending (national income abroad and exchange rates). Inflation also causes aggregate supply to go down which is the total supply of goods and services produced within an economy at a given overall price level in a given time period. It is represented by the aggregate-supply curve,

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