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Revenue Growth And Inflation

Abbreviated Question: 
Revenue Growth And Inflation
Answer: 

By definition, revenue equals price of product times the number of units of the product sold. If revenue grows by 3% (in dollar terms) and inflation is 6%, it means there is negative "real" growth, meaning the purchasing power of that revenue growth (what it can buy) has fallen by 3%. A business may show positive growth in nominal terms but show negative growth in real terms.

Could we create a more timely measure of inflation rather than waiting a month?

Abbreviated Question: 
Could we create a more timely measure of inflation rather than waiting a month?
Answer: 

Yes, more timely inflation measures do exist.  For example, academics have used new data-gathering techniques, referred to as "big data", to create daily inflation measures; see, e.g., the Billion Prices Project (https://www.hbs.edu/faculty/Pages/item.aspx?num=52242).  However, there are trade-offs between using these measures and the official (monthly) price indexes, which are the CPI (produced by the Bureau of Labor Statistics) and PCE inflation (produced by the Bureau of Economic Analysis).  While the big-

Why can’t we print more money?

Abbreviated Question: 
Why can’t we print more money?
Answer: 

Printing more money does not solve a country’s financial problems, rather it would exacerbate those. Suppose an economy prints more money, it would mean that the consumers can now buy more goods or a greater quantity of the same good. The willingness to buy more goods or greater quantity of same good leads to rise in demand. In order to meet this augmented demand, however, supply should also increase. A magnified supply requires additional inputs/raw materials including labor. This in turn would drive up the price of the good/goods, thus causing inflation.

How do WPI and CPI move in India?

Abbreviated Question: 
How do WPI and CPI move in India?
Answer: 

Let's recall that inflation is usually computed as a year-on-year (annual) percentage change in the consumer price index. Therefore, CPI inflation for June 2021 will compare the CPI in June 2021 to the CPI in June 2020. Hence, inflation of say 6.2 percent (as you mentioned) means that the CPI in June 2021 was 6.2 percent higher when compared to CPI in June 2020. The same rationale holds for computing WPI inflation. The basic idea is that inflation is an annual percentage change in the relevant price index (CPI or WPI).

Will there be inflation or deflation post-vaccine rollout?

Abbreviated Question: 
Will there be inflation or deflation post-vaccine rollout?
Answer: 

Inflation is the rate of change of the price level (i.e., the “cost of living” as measured in dollars).  The standard framework economists use to understand price changes is supply versus demand.  For example, if supply of an item (i.e., the quantity supplied at any given price) increases while its demand is unchanged, the item’s equilibrium price will fall.  While this framework is intuitive, applying it to predict future price changes may not be straight-forward.  The reason is that the underlying supply and demand are not fixed, and they are often not observable.

CPI and inflation: relationship between MoM and YoY values

Abbreviated Question: 
CPI and inflation: relationship between MoM and YoY values
Answer: 

The easiest way to see the connection between Month on Month Inflation and Year on Year inflation is to take a step back and recall where these numbers are coming from.

 

Inflation - why do we need it?

Abbreviated Question: 
Inflation - why do we need it?
Answer: 

Inflation is the natural outcome of price changes brought about by market forces and governmental forces. It is the rate of change in the price level that, in a country like the U.S., is entirely determined by market forces and the actions of the US Fed in the money market. The Fed is required by Congressional mandate to keep inflation in check by changing the money supply or interest rates. I don't think the Fed ever thinks of inflation as something useful or desirable. I don't think it deliberately tries to keep inflation from falling too low but it may try to curb too high an increase.

How can there be inflation at different rates within the same currency zone?

Abbreviated Question: 
How can there be inflation at different rates within the same currency zone?
Answer: 

Effectively, you are asking: how can there be different prices across countries within the same currency zone? This may sound surprising because within the Euro common currency, for example, we label regions as countries and there is a price index computed for each country. While, for example, the US -- which is itself a well-established currency union -- there is typically one such computed price.

Would it cause inflation if the Federal Reserve printed a bunch of money and gave to someone secretly?

Abbreviated Question: 
Would it cause inflation if the Federal Reserve printed a bunch of money and gave to someone secretly?
Answer: 

If the central bank printed some money and "gave to someone secretly" and that person did not spend it, nothing would happen. If they did spend it, it would add to the money already in circulation, which may or may not (if output went up) cause prices to go up.

Should employees in third world nations get paid in US dollars?

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Should employees in third world nations get paid in US dollars?
Answer: 

If the third world country has low and stable inflation, then it should not matter much; after all, there is a market exchange rate between say $1 and Indian rupees (these days, $1 = Rs. 60) and whether you pay an Indian worker $1 or Rs 60 should not, in principle, matter. But if India's inflation rate is high and increasing, then Rs. 60 will buy less and less in India until the exchange rate between the dollar and the rupee readjusts to that new reality.

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