Problem
This question surrounds the role of money in the economy.
1. Why is high inflation considered undesirable?
2. Explain how changing the interest rate can lead to changes in GDP through the investment channel.
3. Explain how changing the interest rate can lead to changes in GDP through the net export channel.
4. "Governments shouldn't worry about having a high debt level, since they can just print as much money as they need to pay it off." Use an AD-AS diagram to illustrate the dangers of following such a policy.
5. Inflation in Canada in July 2022 was recorded at 7.6%, far above the 2% target. Using an AD/AS diagram, explain what factors you think have led to such high inflation rates.