Because Deflation Is So Costly,some Have Argued That Setting an Inflation

question 31

Essay

Because deflation is so costly,some have argued that setting an inflation target at 2 percent is too low and it should be set higher,to 3 percent,especially in the economic environment of 2007-2010.Consider the impact of such an increase in the inflation target using the AD/AS framework in the short and long run.Begin your analysis in the long-run equilibrium.

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Definitions:

Administrative Action

Proceedings and activities carried out by government agencies to enforce laws, regulations, and policies.

Final Order

The final decision of an administrative agency on an issue. If no appeal is taken, or if the case is not reviewed or considered anew by the agency commission, the administrative law judge’s initial order becomes the final order of the agency.

Federal Agencies

Entities established by the United States government to oversee and manage specific tasks and duties outlined by federal laws.

Public Concern

Matters that are of general interest or importance to the community at large.