money, bankingWhich do you think would be more harmful to the economy an inflation rate that of the 7 percent that has a standards deviation close to zero?  

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litteacher8's profile pic

litteacher8 | High School Teacher | (Level 3) Distinguished Educator

Posted on

Investors are not really as rational as everyone seems to think they are.  They react emotionally.  Also, we will never really know what the inflation rate will be or how stable it is. Investors will react to the information they seem to have or think they have, and what they think will happen.

accessteacher's profile pic

accessteacher | High School Teacher | (Level 3) Distinguished Educator

Posted on

Yes, the problem isn't so much with the rate of inflation as with whether it is stable or not. Financial common sense necessitates that we are able to plan to face the uncertain future that lies before us. If we have fluctuating inflation rates, this can be much more damaging than actually having a quite high, but a stable, rate of interest.

vangoghfan's profile pic

vangoghfan | College Teacher | (Level 2) Educator Emeritus

Posted on

Pohnpei's comments (as usual) make great sense.  Certainty is indeed something much sought after by people who have to make decisions about money. Without some sense of certainty, such people can become paralyzed, leading the economy to stagnate.

pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

I think that you're asking whether high inflation per se is bad or whether inflation is worse if it fluctuates (has a high standard deviation).  If that's what you're asking, fluctuating inflation is much worse.  Businesses and investors want certainty.  If they know inflation will be 7%, they can plan for it.  But if they don't know what it will be, they can't.

readerofbooks's profile pic

readerofbooks | College Teacher | (Level 2) Educator Emeritus

Posted on

If I am understanding your question, you are asking what would be more harmful that an inflation rate of 7%. I can think of many things that would be worse than a 7% inflation rate. Recently there has been talk of stagflation, which seems to be the worst possible scenario. Stagflation takes place when there is inflation but wages from employment do not increase. When this happens everyone gets poorer.

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

Pohnpei's comments (as usual) make great sense.  Certainty is indeed something much sought after by people who have to make decisions about money. Without some sense of certainty, such people can become paralyzed, leading the economy to stagnate.

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

Investors are not really as rational as everyone seems to think they are.  They react emotionally.  Also, we will never really know what the inflation rate will be or how stable it is. Investors will react to the information they seem to have or think they have, and what they think will happen.

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

Yes, the problem isn't so much with the rate of inflation as with whether it is stable or not. Financial common sense necessitates that we are able to plan to face the uncertain future that lies before us. If we have fluctuating inflation rates, this can be much more damaging than actually having a quite high, but a stable, rate of interest.

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

I think that you're asking whether high inflation per se is bad or whether inflation is worse if it fluctuates (has a high standard deviation).  If that's what you're asking, fluctuating inflation is much worse.  Businesses and investors want certainty.  If they know inflation will be 7%, they can plan for it.  But if they don't know what it will be, they can't.

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

If I am understanding your question, you are asking what would be more harmful that an inflation rate of 7%. I can think of many things that would be worse than a 7% inflation rate. Recently there has been talk of stagflation, which seems to be the worst possible scenario. Stagflation takes place when there is inflation but wages from employment do not increase. When this happens everyone gets poorer.

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?

ranger1980's profile pic

ranger1980 | Student, Undergraduate | (Level 1) Valedictorian

Posted on

money, banking

Which do you think would be more harmful to the economy an inflation rate that of the 7 percent that has a standards deviation close to zero?  

Sorry I write the answer wrong this is the question; sorry for the confussion!

Which do you think would be more harmful to the economy an-inflation that average 5 percent year and has a high standards deviation rate that of the 7 percent that has a standards deviation close to zero?  

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