Wage Growth Is the New Inflation, Essay Example

The Author, Dustian Prial, of the article, is absolutely factual when he suggests that, “Wage Growth is the New Inflation”. This is so because he has clearly indicated that an innovation in the rate of growth of nominal wages increases inflation—an effect that displays considerable persistence over time in his country. From his context, output, however, falls in some cases and rises in others, reflecting conflicting demand-and supply-side effects, associated with the rise in wages. For instance, A fall in the rate of depreciation of the exchange rate by 2% leads to a reduction in inflation on impact.

Also the author forgot to indicate that the shocks associated with a transitory increase in output (despite a persistent increase in real wages) Also,  a temporary increase in the rate of growth of the nominal money stock has an expansionary effect on output, and only a short-lived impact on inflation.

The content on this treatise makes sense since the facts indicated by the author are factual and from his point of view Wage Growth correlates to Inflation. This is so because effect on output is expansionary but short—lived, whereas the effect on inflation is positive on impact and persistent.

If the Congress enacts a significant tax cut it will consequently raise government spending, and increase the deficit ceiling by about 1 percent of GDP. The unexpected privatization windfall will add to pressures to raise spending and the deficit ceiling. However, the Congress have consistently noted that there is no good reason to increase the deficit and that there is a need to reduce the tax burden. In a repeated first reading on November l, parliament approved a revised government budget proposal that kept the deficit ceiling unchanged but if Congress pressures to raise spending, then the deficit are likely to remain strong.

Yes each of the options mentioned directly or indirectly offsets Fiscal policy. This is so because all the options mention relates to either the Congress deliberately adjust government spending or taxing in response to a problem with unemployment or demand-pull inflation. Or cut or raise taxes or change tax exemptions and deductions. To practice fiscal policy, the Congress with the leadership of the president may enact the following exercises mentioned on a, b & c

The gap that exists in point A is an Inflationary Gap. This is where Job seekers are less than the job openings in the market. Employers have no choice but to increase salaries to attract employees

When the economy is in an inflationary gap, wage rates rise (along with other resource
prices), and the SRAS curve shifts to the left. At the same time, the price level rises and the
economy moves up the AD curve. The economy moves in the direction once borrowing from private sectors has been achieved hence equilibrium, ultimately achieving the Natural Real GDP level,

Today, a government’s intertemporal budget constraint is central to any informed analysis of the public debt.’“ This constraint implies that the size of the public debt that a government can sustain, given its tax and program expenditure levels, depends on the rate of interest on the debt and the rate of economic growth. A lower rate of growth means either that taxes have to be raised or program expenditures cut if a government is to maintain its debt ratio. But the rate of economic growth may, in turn, be affected by the level of taxation that is required to finance the public debt.

As noted, when the federal government spends more than it receives in revenues, it typically borrows by selling securities. Individuals, businesses, and foreigners buy these treasuries. Every time the federal government engages in deficit spending, like for example helping victims of the hurricane it increases the size of its total debt.

As long as individuals, businesses, and foreigners (especially foreign governments) are willing to purchase Treasury securities, the government can continue to engage in deficit spending. It deficit spending goes on long enough, however they may lose faith in the government hence borrowing becomes more expensive and the net debt goes up.