Toba Daniel

Market Disequilibrium and Ways to Correct Them by the Macroeconomic Policies

In the general economic language, any rise in prices is called inflation, but it is necessary to make a clear distinction between the causes determining a single non-continuous rise in prices and other circumstances that may cause a continuous and widespread growth of them. In the evolution of real economy various events may occur that are able to cause a rise in prices on the whole market. These are called inflation "shocks". In order to analyze these issues more deeply, we will suppose that the economy is in a long-term macroeconomic balance and currency exchange rate operates under a flexible regime. Also, in the initial state, the price level is relatively constant and gross domestic product (GDP) is at its potential level.