Thursday, April 23, 2009

why policymakers allow inflation to occur

Despite the fact that inflation can generate tremendous costs for the economy, in order to achieve other goals (such as full employment of the economy is resources), governments sometimes pursue inflationary monetary policies . In particular, measures related to current output (such as the levels of GDP,households incomes, and the unemployment rate) capture the attention of voters and public officials alike. Indeed, movements in current output can greatly influence presidential elections, creating a temptation on increase aggregate demand in the short run.Ray Fair of Yale University has noted that significant GDP growth and a falling unemployment rate increased the reelection chances of incumbent president and other candidates of the same party.

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