Inflation Essays

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INFLATION CAN OUR ECONOMY GROW WITHOUT IT? What is inflation? The definition of inflation, according to Webster’s Revised Unabridged Dictionary, is “an undue expansion or increase, from overissue.” Although, Webster’s is considered by most to be the overall best dictionary, WordNet states the meaning of inflation a lot clearer by saying, “it’s a general and progressive increase in prices.” It occurs when the value of goods rises faster than the value of money. The usual approximate measure of this is the Consumer Price Index, which weigh the prices of different goods according to importance in a typical budget and then shows how much the prices of these goods have increased. This …show more content…

That’s an incredible drop for such a short period of time. Another good demonstration of a healthy economy with low secondary effects of inflation is time period between the Korean Vietnam Wars. During this time the countries economy expanded at an annual average of 3.5% while the inflation rate stayed at a minimal amount. Our central bank, along with the Clinton Administrations and many other major economists seem to believe that any kind of growth in the economy of over 2.5% will trigger inflation. That’s why so many economists assumed that with the ever-lowering unemployment rates of recent, there would be huge increases in wages and it would sharply inflate prices. This same assumption was made because of the Federal Reserve’s actions in the past. In 1994 the Federal Reserve tried slowing down the economy in the fight against inflation by raising interest rates. They were not thinking of the opportunity costs of a million new jobs that could have been created, but were not, due to the economies slumping standards.

Because of this, many personal incomes that could have been increased were not. This is just one example of market failure through the ideas of Phillips Curve and the Consumer Price Indexes. As I stated earlier, the Consumer Price Indexes, that most economists go by to judge inflation, are not completely

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