Economics Responses
Response One
Demand-pull inflation is the direct result of the increase in the demand for goods and services in a market as opposed to the economy’s productive capacity. It results from the high liquidity in the market due to an increase in money circulating in the economy. An increase in liquidity in the consumption market is directly responsible for the increase in demand-pull (Amir & Zia, 2014). There is a higher demand for goods as opposed to their supply, and this directly leads to inflation. The current Covid-19 pandemic has occasioned the injection of money to the consumer market through stimulus packages. Due to the widespread taking of this action, it will have a minimum impact on the Purchasing Power Parity. After the pandemic, there will be the establishment of new price ceilings and floors that will represent the understanding that different parties have.
Response Two
The Purchasing Power Parity Theory is represented through the equal prices of goods in different markets after the elimination of transport, duty, and tariff charges. However, this is not ideally the case as different economies implement different strategies to ensure that there is a relative understanding of the issues that they have. Different economies have varying ways through which they can effectively control their PPP (Goyal, 2014). The inflation in a country has a direct relationship to the PPP that it has based on consumer consumption in place. The increased supply of money as a stimulus package for those affected by the Coronavirus pandemic will change the balance in the economy. It may result in the depreciation of an economy. Mitigating economic liabilities will arise through the active focus on initiating processes to ensure the viability of the economy.
References
Amir, H., & Zia, O. (2013, August). Cost-Push vs Demand-Pull Inflation: Evidence from an Emerging Economy (Pakistan). The Journal of Humanities and Social Sciences, 21(2). Retrieved from https://www.questia.com/library/journal/1P3-3472813211/cost-push-vs-demand-pull-inflation-evidence-from
Goyal, A. (2014). Purchasing Power Parity, Wages and Inflation in Emerging Markets. Foreign Trade Review, 49(4), 327-347. doi:10.1177/0015732514543587