Option I

A)     A long period of high inflation results in a large increase in the prices of products and services in the country affected by the inflation. This increase in the price of products and services effectively reduces the purchasing power of currencies in that country making it harder to purchase things. As an example say someone was in Canada and for one dollar they could get 10 pencils, but after two years of inflation they could only get 8 pencils for the same one dollar. This shows how extended inflation reduces the purchasing power in that country, reducing the demand of products because people can no longer buy as much.

B)      One effective strategy to fixing inflation in setting a price ceiling, doing this would set a maximum price of a product not allowing the price to increase anymore due to inflation. If the price is no longer decreasing then the demand isn’t decreasing either. An example of this in history was during the great depression in the USA. A price ceiling was put on bread because the price was shooting through the roof, making it extremely expensive and hard to buy, but because bread was a very inelastic good the demand barely decreased. By instituting a price ceiling bread demand was no longer decreasing, allowing for people to buy it and the price to eventually even out.