Reference no: EM133204921

INFLATION AND RISING INTEREST RATES

Inflation has been the focus in recent financial news. In June 2022, the World Bank warned that "several years of above-average inflation and below-average growth now seem likely." Larry Summers, one of the world's best-know economists, and co- authors concluded in a research paper that the current inflation regime is closer to that of the late 1970s than it may first appear. (https://www.nber.org/papers/w30116) In its June's monetary policy decision, the Reserve Bank of Australia increased the cash rate by 50 basis points to 85 basis points as a step in the withdrawal of the extraordinary monetary support that is put in place during the pandemic. The tasks below aim to help you understand the impact of inflation on the financial market and the reactions from policy makers.

Task 1:

Address the following questions.

• What is stagflation?
• What are the examples and lessons of stagflation in the history?
• Why is stagflation a challenge to the economy?

Please also note that there is no definitive answer to this problem. You will need to conduct in- depth research. You will be assessed on how well reasoned and researched your answer is, rather than any specific conclusions that you reach. You need to support your views by referencing for example, data, graph, research reports/papers, and news articles, etc