REPLY TO BOTH CLASSMATES:

Classmate 1:

1. What is inflation? How is it linked to price?

Inflation is a rate of increase in prices over a given period of time. It is linked to price because everything we consume is attached to a dollar sign in some form or another.

2. Discuss the 2020 decision by the Federal Reserve to buy debt from larger firms. What was the goal of this policy? What were the unintended consequences of the policy? Consider your response from the perspective of various stakeholders including investors, consumers, and labor.

The goal of the policy was to stabilize the economy in that uncertain period of time for everyone. The consequences of the Federal reserve resulted in large companies borrowing huge amounts of money for a little price at the time being. Smaller companies could simply not have the same access as these larger companies did this results in no competition between competitors that being smaller companies against the larger ones. Since theres no competition larger companies raise their prices on their goods and since theres no one to compete at a smaller given price for the same goods we as consumers have no other options, but to spend those higher prices.

3. Since the start of the pandemic, many large companies like P&G and Unilever have posted record profits. Now, many of those same companies are warning of future prices hikes. Why do these companies keep raising prices if they are earning record profits? How high can companies push prices before it affects demand?

These companies continue to raise prices to make a profit. If they have no competition they are facing a demand for their goods. If consumers stop buying their goods then a price decrease may happen so they do not lose profit or their consumers.

Classmate 2:

1. What is inflation? How is it linked to price?

When the price of goods or services increases the purchasing power of many people is reduced. Inflation reacts in correspondence to the rising prices and thus we get an inflation rate.

2. Discuss the 2020 decision by the Federal Reserve to buy debt from larger firms. What was the goal of this policy? What were the unintended consequences of the policy? Consider your response from the perspective of various stakeholders including investors, consumers, and labor.

The goal of the policy was to stabilize the economy and avoid large amounts of uncertainty. The consequences were that large companies went after the opportunity to get large sums of cash on the cheap. Small companies did not have equal access to this money and have since struggled to coexist with larger companies. Large companies are using their funds to essentially remove competition. Due to a lack of competition they can continue to raise prices without worry of losing consumers.

3. Since the start of the pandemic, many large companies like P&G and Unilever have posted record profits. Now, many of those same companies are warning of future price hikes. Why do these companies keep raising prices if they are earning record profits? How high can companies push prices before it affects demand?

Companies are continuing to raise prices not just out of greed but to impress investors. Companies will only be able to push the price of goods or services so high. Some goods have price ceilings and if luxury-type items get too high in price very few people will purchase them and companies will start to lose profits. While necessities like food are going up it is unlikely that all products will be out of reach for most people.