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Exercise 2

Answer the questions:

1. Under what general conditions is inflation produced?

2. What does a government have to do if it wants to put an end to inflation?

3. Why did the Fed increase money growth in the US in the late sixties?

4. What is the relation between inflation and the interest rates?

5. Why do people «fly from money» in the periods of high growth of money?

6. What factors play key roles in the currency depreciation process?

7. What is the relation between inflation and output?

8. In what way do deflation and output interrelate?

9. What is the trend output rate?

10. What effect does monetarism have on real economic policies?