Macro economics Assignment Example | Topics and Well Written Essays - 3500 words

Macro economics - Assignment Example High rates of inflation affect the output of the economy and influence the growth of the economy. A permanent or long lasting inflation shock affects the economy on a larger note. On the other hand, the continuous rate of deflation leads to a persistent decline of prices and affects the economy at large1;2. With this regard, the assignment elaborates the present issue of euro zone with respect to the below target inflation rate. The different consequences that may arise due to deflation have been elaborated in the paper. Furthermore, the different macroeconomic tools that are available to avoid such side effects have been detailed. Inflation rates that are prevalent within a country help in determining the different monetary policies important within an economy. Inflation rates help in determining various conceptions predominant for determining monetary policies of a nation. The monetary policies guide in developing different economic frameworks to be determined within an economy. The below target of inflation affects the economy on a whole and has a major impact on the output of a nation. The long run inflation targets are one of the major issues that help in determining the different economic operations of a nation. Inflation rates that are operating in a nation determine the interest rates and the value of money at large. Inflation rates can never be zero, as this would be highly unrealistic and would lead to a larger fall in the value of money within the economy. Both continuous rise and fall in the rate of inflation has adverse effects on overall economy of a nation. Below target inflation, for a continuo us rate may lead to a steep fall in GDP and even lead to a fall in the value of money3;4. With the above mentioned concepts, the below target inflation rate in the Eurozone has been lower than the estimated rate of inflation for a given tenure. This is even noted that the specific monetary as well as fiscal policies that are