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During the 1960s and 70s European governments instituted various wage and price controls to reduce inflation As the inflation grew Governments perceived it as a greater problem Within the UK in the 1980s as the inflation was reaching double figures voters claimed that it was public enemy number one consequently the prime minister Margaret Thatcher adopted various extreme measures to combat inflation which resulted in massive industrial and political unrest along with mass unemployment But as a consequence of these measures inflation was suppressed which encouraged her double re-election Inflation has been seen as a great problem from public and governments alike and as with Thatcher successful anti-inflationary policy can lead to political success but is inflation as much a menace to the economy as it is perceived Inflation is perceived to be such a great problem as everyone in the whole economy is directly affected by it so observe the negative aspects of it In this way only the people directly affected by unemployment perceived it to be a great problem those who are not directly involved in terms of individually or community do not see the true costs of unemployment Quite often the publics negative view of inflation is not from true economic costs Within inflation if incomes and costs grow at the same amount there would be no reduction in purchasing power so no economic cost For instance if wages increased by double and so did price then relatively goods and services would be the same price Fischer in his book indexing inflation and economic policy refers to this under the label misunderstanding hypotheses stating that people further dislike inflation due to the false illusion of inflation taking away the fruits of inflation caused income increase This happens as people fail to recognize a general inflationary price level increase Dornbusch As a result of people failing to distinguish between nominal and real wage and price level increases they expect to have greater
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