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A Treatise on Economics

Controlling inflation in these countries can only be achieved by combining the various policies named above. These include the fiscal policy, labor market reforms, supply-side reforms, income policies or direct wage controls and temporary control systems. The central bank for example the Federal Reserve should be responsible for setting up interest rates to control the rising inflation in the country. The US government should try to get an official interest rate offered by banks to check the rate of inflation through forming the monetary policy. Increasing the interest rate will lead to a low supply of money to the economy.

Mortgage interest payment should also be increased to ensure that the ability of people to spend huge amount of money on buying homes would be low. People will also tend to reduce their rate of borrowing money because they will be discouraged by the high interest rate. Labor market reforms will ensure that the bargaining power of trade unions is lowered. Private firms should be encouraged to use temporary agencies to address fluctuation in labor force as a way of saving costs. This will lead to a decline in the inflation rate in these economies part time workers who can be

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hired and fired any time should be employed.

This is a means of weakening the powers of trade unions. The union will therefore not have powers. Conclusion In conclusion, US, Germany, India and China still have many years of inflation before the war ends. Those who are planning to invest should be cautious enough not to be pushed by the risks of inflation. This is because cash and bonds are generally known to be good for deflation, but a terrible investment choice in an inflationary environment. Most common choices entrepreneurs make include hard assets like precious metals, industrial commodities and real estates.

Inflation can never be forecast with perfect accuracy. The external economic shocks normally make the forecasting of inflation inaccurate for example a sharp increase in the world oil prices which is an inflationary shock and a sharp decrease in global share prices will give a heavy feed back results through the economic system. This might also lead to fluctuation of exchange rates leading to volatility in the prices of imported goods and services. The government should therefore pay more attention to both internal and external factors that causes inflation.

Policies formed should lead to a decrease in the demand for goods and services and at the same time lead to improvements to the supply side of the economy. What I can say about the inflation rate in these countries is that, in the near future the issue will bring a big economic shock to the economy. If the purchasing power of an economy is not regulated then it means that the money supply is not controlled. Policies mentioned above such as the fiscal policy, monetary policy an application of the exchange rate, direct wage control and labor market reforms should be implemented to address the issue of inflation.

Reference:

Christine S and Alok, K (1995) Monetary Policy and Inflation Uncertainty in the United States and Germany, Southern Economic Journal. Vol 62 David C. P. (1996) Inflation and Relative Price Variability in the Short and Long Run. New Evidence from the United States, Journal of Money, Credit and Banking Vol. 28 George, R. (1990) Capitalism: A Treatise on Economics. Ottawa: James Books Victor, U. (1997) Wage Growth and Inflation in the United States: Further Evidence from Johensen’s Cointegration Approach; American Economist, Vol 411. William, J. and Alan S (2006). Macroeconomics; Principles and Policy, New York. Thomson Southwestern

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