Using the rate of inflation to make a decision

In Chapter 4 of The Little Book of Economics, Ip talks about the natural rate of unemployment as the rate of unemployment that will not lead to an acceleration in inflation. Keep this reading in mind as you respond to this week’s discussion questions.

• Think about this: If the current unemployment rate is 3.9%, would one expect the rate of inflation to increase or decrease? Explain your answer.
• Now you face a wonderful decision. Imagine that you just won a lottery jackpot of $100,000. If you expect inflation to accelerate, should you buy that home you’ve been thinking of now? What would you decide if the rate of inflation is negative?

Respond to a classmate:

f you think about the percentage of working able body people in America, the unemployment rate is saying that only 3.9% of the working population has currently filed unemployment benefits within a 4 week period since the last rate was reported by the Bureau of Labor. Do I think this will lead to an increase in inflation, well if you average 3.9% a year, the answer is yes. This report means that approx. 96% are employed, which are really good percentages

However if you look at the inflation in another way, with 96% of people working, that means jobs are going to be hard to come by unless you have the exact credentials that the hiring company is looking for. This is great for the employer which says the pay rates dont have to rise, because people out of work will be willing to work for less. In this since, inflation would not be a problem, as pay rates are not going to go up as quick as if the unemployment rate was higher.

• Now you face a wonderful decision. Imagine that you just won a lottery jackpot of $100,000. If you expect inflation to accelerate, should you buy that home you’ve been thinking of now? What would you decide if the rate of inflation is negative?

Respond to a classmate:

If the inflation rate is accelerating, that probably means that the real estate market is going to be tight, which also means the cost of real estate will be much higher then if the inflation rate was low. If I were a lottery winner, the best bet would be to not buy, but invest the money in some type of high yield and make money while inflation is high. When the inflation rate drops, that means the real estate market will drop, take the money you invested and the interest with it and you will be in a much better position and able to buy much more house for less money.