The Meaning of Inflation Essay examples

Inflation is a general increase in the prices of all goods and services. Inflation occurs when the average level of prices in the economy increases over time. Even as overall prices are increasing, particular relative prices will change. The US Federal Reserve attempts to control and reduce inflation. Central banks focus is on strictly controlling inflation, protecting financial assets, and keeping labor markets strictly in check. Central Banks hold inflation more important than unemployment. Central Banks believe the only long-run impact of monetary policy is on the rate of inflation. They believe free-market forces in the real economy determine real output, employment, and productivity. To attain the targeted inflation rate, central banks influence credit creation and hence spending by frequently adjusting interest rates.

As we can see from the graph above UK’s inflation in 1980 was 18% followed by a steep drop in 1981 of 11.90%, 8.60% in1982 and lastly 4.60% in 1983 resulting in a highly disinflated economy due to inflation rates sky rocketing which however was dealt severely by the government by decreasing budget deficit and charging higher taxes by cutting extensively on spending.

Monetary policy, ‘The government’s policy relating to the money supply, bank interest rates, and borrowing’ (Collin: 130), is another tool available to the government to control inflation. Figure 4 shows, that by increasing the interest rate (r), from r1 to r2, the supply of money (ms) is reduced from Q1

Inflation tends to hurt those employees in jobs with poor bargaining positions in the labour market - for example people in low paid jobs with little or no trade union protection

In this essay I am going to discuss and evaluate whether or not I think that the UK government should join the euro and the advantages and disadvantages of being in the Eurozone. Additionally, I will be discussing and evaluating the exchange rate theory, the UK’s entry and withdrawal of Exchange Rate Mechanism (ERM 1) and which elements are included in the European Monetary System (EMS).

The innermost issue in macroeconomics is whether or not markets automatically bring economic equilibrium. If the free operation of market forces eventually resulted in a full employment level of national revenue with stable prices and economic growth, there would be no need for government to intervene. The actuality is that the government intrudes through their macroeconomic policies to attain policy goal and recover the performance of the economy. The government’s goal in macroeconomics is to stabilize prices. We can look at this and picture the government’s desire to a keep a low and stable rate of inflation. The reason for this is because there are a numerous of negative impacts associated with the high levels of inflation, such as,

Unemployment and inflation have an inverse relationship meaning that as one increases, the other decreases. According to the textbook, an ideal situation for the Federal Reserve would be to achieve both a low level of unemployment and a low level of inflation. After the 9/11 attacks in New York, the United States was put in a tragic financial crisis that led to the recession in 2008.

Inflation is one of the horrendous nightmares of any person who belongs to a middle class family. The depiction of the protagonist in the movie clearly shows how his family fights tooth and nail to survive in the phase of price augmentation of essential food commodities. But to his despair, the time arrives when the protagonist has to have an alternative to feed his family. His usage of Government’s interest free loan for commencement of business, to purchase ration for 3 years for his family clearly shows their dire need of ration for their survival. It had not been possible, if their incomes would have remained stagnant.

The Phillips curve shows the relationship between unemployment and inflation in an economy. Unemployment involves people who are registered as able, available and willing to work at the going wage rate but who cannot find work despite actively searching for work. Unemployment can be counted by using the claimant count which includes all those who are unemployed and actually claiming benefit in the form of Jobseekers Allowance. Inflation is a sustained increase in general price level leading to a fall in the purchasing power or value of money. Inflation is measured using either the Consumer Price index (CPI) or the Retail Price Index. This essay will consider the

Inflation can have significant economic effects. It can, for instance, influence the distribution of national income and wealth. A low and stable rate of inflation is desirable both for the health of the economy and for individual welfare. There are many measures of inflation, each suited to a different purpose.

Since 2009 the British economy has been failing. Although economic recovery recently looked possible, it has continued to falter. At present with the prospect of high energy prices, there is the possibility of inflation, although some commentators still hold that this is unlikely. Nevertheless, there has been a considerable fall in productivity.

This essay will examine how the Bank of England’s Monetary Policy committee uses monetary policy to control the main macro objectives such as inflation and balance of payments. It will discuss how interest rates are determined through an equilibrium between money supply and demand. Monetary policy is a macroeconomic policy laid down by the MPC to affect aggregate demand using interest rates . The committee meets to set a bank rate with an aim to fix problems in the economy. The Bank of England’s main objective is to keep inflation at a target rate of 2% using interest rates. This decision effects mortgage and bank deposit rates so is important to control . Over the past decade inflation has been fluctuating largely with an upward trend

There are different influences that cause inflation such as energy, food, commodities, and other goods and services. The entire economy is affected by rise of the cost of living. It also affects the cost of operating a business, borrowing money, mortgages, corporate and government bond yields, and every other aspect of the economy. There are several advantages of inflation in the economy. Some include moderate rates of inflation which allows prices to adjust. This is considered a sign of a healthy economy. With economic growth available we usually get a generous amount of inflation. Also moderate inflation rate reduces the actual value of debt. If there is a reduction, the real value of debt increase leads to a squeeze on usuable income.

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

This paper looks at the issue of inflation control as an objective of central banks. Viewing the British Commonwealth and Continental European models of ‘zero inflation’ in contrast with the moderate inflation policy of the US provides a case against zero inflation as a policy objective. A variety of issues that surround inflation; e.g., the inflation/unemployment relationship, etc, will be brought to the fore. In the final analysis, it is clear that efforts to eradicate inflation are misguided and more moderate inflation is preferable in an era where steady economic growth is desirable.