Argentina Article 3. When people expect prices to rise rapidly, what would they expect to happen to the value of money they hold? Explain this in the context of the article about Argentina. 1. What is the essence of the story/article? g - For a long time, Argentines appear to have a lack of faith in their national currency, and paired with bad economic policies, the government decided to devalue their peso to dollars which caused a mass panic in Argentina. Consumers rush to supermarket chains to stock up on goods in fear that they won’t be able to afford the products once the prices go up and the availability of dollars in the country goes down. - . Argentines have a lack of trust in their own currency so much so that they would prefer to trade their money for a more stable currency such as the US dollar. With this, with the money that the Argentines have and with the supermarkets that still accept pesos, they hoard/invest in goods early on because they know that prices will increase later. Argentines believe that their money is no good in stores with imported goods such as pharmacies, tech brands, and other big brands. 2. Describe the inflation experience of Argentina. - Devaluation poses a serious risk because it might worsen inflation by raising import costs and increasing domestic product demand. If this occurs, the government may be forced to increase interest rates to curb inflation, but doing so would slow down the economy. As a result of the Argentine Peso devaluing, inflation in the country continues to increase over time. Since the Argentine Peso is unstable, Argentines opt to buy US dollars instead as this currency is one of the strongest worldwide. However, due to a lack of US dollars and with big brand stores rejecting local currency, citizens panic-buy their goods in order to secure their selves in the future when the prices go up. Since the Argentines have weak purchasing power under the local currency and that big brand stores only accept dollars, they would expect that the prices for domestic goods would increase. 4. What is the inflation record of Argentina from 1971 to 2001? Observe the money growth rate in Argentina. How does this relate to the quantity theory of money? - According to the quantity theory of money, the amount of money in existence and the level of prices in a given economy are directly correlated. The price level changes proportionally in response to changes in the money supply and vice versa. This would tell us that in the case of Argentina, with their local currency devaluing, there is more supply of money in their currency that would jack up the prices of their goods and services. Argentina has always been in the face of economic crises, and the supply of money is one of the main culprits for this issue. Historically significant fiscal imbalances, rapid increases in monetary aggregates, and stagnant GDP all contribute to chronically high and rising inflation. 5. What was the peak of inflation for the period 1971 to 2001? What was the result of this crisis? What was the response to this crisis? Was the response successful? How did the people react? - Argentina reached a hyperinflation of 3,079% in 1989. During the 1980s, while the first debt crisis was in full swing, the Argentine economy did poorly. Prices surged as the currency continued to weaken, real production growth slowed, financial markets crashed, and money departed the nation in search of safer havens. This resulted in a cycle of increasing prices and wages to keep up with those prices became unmanageable. There was a rush to buy since the cost of items in stores and supermarkets changed numerous times on the same day. The stores started to run out of necessities. As a remedy, the Argentine peso was pegged to the dollar under the Menem government. Additionally, it privatized the state's oil corporation, post office, and utilities such as water, electricity, and telephone. Some people were pleased by this, and optimistic investors poured money into Argentina's economy, helping to reduce inflation to single digits by 1993. This solution was successful in deflating the prices but it didn’t help with the growth of the economy. Phillips Curve Article 1. What is the essence of the story/article? -Federal Reserve Chairman, Mr. Alan Greenspan, finds that the connection between inflation and unemployment rate is tenuous. He believes that the Phillips Curve may have been successful on an instance but could possibly fail on another which makes it a poor indicator of inflation. On another argument, Fed Governor Lawrence Meyer continues to support the idea of the Nairu, or nonaccelerating inflation rate of unemployment. According to this theory, wages will start to grow, which will eventually lead to an increase in prices, if the rate of unemployment falls below a specific line and stays below it. 2. During 2000, what was the unemployment rate? The percentage of the population that was employed stayed at record-high levels, and the unemployment rate in the fourth quarter of 2000 was 4.0 percent, the lowest since 1969. The generally decent job market in 2000 benefited workers in most significant demographic groups, with minorities experiencing particularly substantial growth. 3. How has inflation behaved in relation to the unemployment level in 2000? Interpret the data in 2000 in terms of the long-run Phillips curve. - The inflation rate in 2000 was 3.36%. The 2000 inflation rate is higher compared to the average inflation rate of 2.40% per year between 2000 and 2023. As unemployment fell, inflation remained steady even during the mind 2000s. 4. Based on your interpretation, can you conclude the relationship between inflation and unemployment? What is the implication of this to monetary policy? - Historically, there has been an inverse correlation between inflation and unemployment. This implies that unemployment decreases as inflation increases. Conversely, higher unemployment results in reduced inflation. When more individuals are employed, they have more disposable income, which raises demand. I would agree that there is a relationship between the two. This would mean that the Phillips curve would be a good indicator to make monetary policies that would specifically strategize against unemployment in order to control inflation. A nation's entire money supply is managed by monetary policy, which also aims to promote economic growth. Interest rate changes and adjustments to bank reserve requirements are examples of monetary policy strategies. It is conventional to categorize monetary policy as either expansionary or restrictive.
