Shrinking Packages

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  1. Anonymous says:

    This relates to monetary policy because it shows signs of pending inflation. Although this situation does not sound like the Brazil “price-sticker” frenzy, it seems like a step in that direction. If companies offer less and less product at the same price, inflation will inevitably occur. Head of the Fed Bernanke might try to control such inflation by employing contractionary policy, or by shifting the money supply curve to the left by selling securities or raising the discount rate.

  2. Anonymous says:

    Maintaining price while reducing the size of a package is fundamentally the same as maintaining the size of the package and raising the price. Consumers still have less purchasing power because they receive less for their money. The CPI is recalibrated because the 16 oz container of ice cream is considered a different item from an identical container that is 2 oz smaller. With this method, CPI is ignoring inflation. Dr. Bernanke should look past the numbers the CPI gives and instead realize that inflation is not as ideal as it may seem. Dr. Bernanke could target inflation by selling securities or raising the discount rate. However, although the CPI is flawed, I think the more urgent issue at the moment is unemployment, not inflation.

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