Re: When should the Fed act against inflation?
- From: Nospam <nospam@xxxxxxxxxxx>
- Date: Fri, 16 Jun 2006 06:43:03 -0400
root wrote:
Take two scenarios:
Take third:
3. Exports goes down while imports up. As a result the currency devaluate,
and you see this as a rise in prices, i.e. inflation.
1. the government runs a deficit, pumps money into the economy and
prices rise as a consequence.
2. global demand for oil exceeds supply leading to an increase in
the cost of energy which trickles through the economy causing
an increase in prices.
Both cases result in a rise in prices but the Fed would be wrong
to counter the second case for several reasons. First that it would
be fruitless but second that it would deter the development of
alternative technologies.
What tools does the Fed use to differentiate between these two effects?
.
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