Inflation 2 Essay, Research Paper
INFLATION
Can Our Economy Grow Without It?
INTRODUCTION: What is inflation? The definition of inflation, according to Webster s Revised Unabridged Dictionary, is an undue expansion or increase, from overissue. (Hypertext, 1) 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. (Hypertext, 1) 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 immediately raises some problems; for example, the weight of the goods must change over time. The importance of computers was not measured in the price index 100 years ago. Another problem is the failure of the price index to capture changes in quality. The quality of a good may have improved by 20%, while the price has only risen by 10%. The consumer price index doesn t feel this should be a factor, but many would disagree. Hence, inflation is not easy to define in practice. This should be kept in mind when discussing how to defeat inflation.
DISCUSSION: There have been numerous theories on how to defeat inflation and even some theories on whether, or not, it should be defeated at all. Some say that inflation is not only expected, but often, needed. Economists believe that in order for the economy to expand and grow, there has to be some level of inflation. Therefore, the opposite holds true as well. If you want to lower inflation, you have to accept a semi-standard economy. They call this tradeoff the Phillips Curve.
The Phillips Curve is thought to be the proper way of balancing economic growth and inflation. For this reason the Federal Reserve is always looking for the perfect equilibrium at which we can maximize our economic growth while keeping inflation as minimal as possible. They do this by increasing and decreasing interest rates. Although, Economists and the Federal
Reserve abide by the Phillips Curve as a general rule for not letting inflation get out of hand, it has been proven many times in the past that it is possible to have a very healthy and prosperous economy without raising inflation at all. There are even examples of inflation declining while the economy booms.
As Steve Forbes, of Forbes magazine, said, Prosperity is not the fueler of inflation. (Forbes, 23) For example, in the 1980’s, when the economy was at a major high, inflation fell from 13% all the way to 4%. 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 accurate. There are many goods in the market today that greatly increased their quality while maintaining or even reducing their prices. A great model for this are the new personal computers. Today s computers are more powerful and faster than the older
models of just a few years or even months ago. Somehow, through the wonders of technology, they manage to make these great new computers at lower prices than the old ones. This is just one reason why the inflation rate is so much lower than what the Consumer Price Indexes in comparison to the Phillips Curve would lead you to believe. In fact, as of 1996, the consumer price inflation was running at an annual rate of about 3 percent. It had been holding relatively steady at this percentage for the previous four years as well. That percentage was absolutely amazing considering the unemployment rate, at that time, was at a seven-year low of just over 5 percent.
CONCLUSION: From my research, I have concluded that inflation is definitely an unwanted and usually unneeded aspect of a good economy. The main concept of the Phillips Curve is fine; it just needs to be updated. They need to reevaluate the weight of the prices for the different goods. They also need to update the overall list of important goods in the typical budget (attached is a recent Consumer Price Index listing and charts). This new listing would have to include all the latest goods that weren t as important in the past. The Phillips Curve should also start taking into consideration the ratio of the quality that the good has increased to the price that it has increased. This would show a truer relation of the prices of goods to the inflation of the economy.
I can see the Federal Reserves reasoning behind raising interest rates to slow down the economy and lower inflation, but they need to realize that the rate of inflation is not completely dependant upon the rise and fall of the economies well-being. The past has proven to us numerous times that the economy is quite capable of being stable and prosperous without effecting the inflation rate in a negative way. That s why I feel that it would be in the nations best interest to continue letting the economy expand into bigger and better things without raising interest rates to unneeded proportions.
Works Cited
Forbes, Steve. Bad Idea Begets Bad Economy. Forbes. Oct. 9, 1995: p23.
Dentzer, Susan. Honey, I Shrunk the Price Tag!. U.S. News & World Report. Sept. 23, 1996: p72.
Forbes, Steve. Stop Stunting Our Prosperity. Forbes. Oct. 16, 1995: p27.
Inflation. Hypertext Webster Gateway. Jan. 20, 1999: internet. work.ucsd.edu:5141/cgi-bin/http_webster?inflation
Bootle, Roger. Chapter 2-Prices. The Death of Inflation. Nicholas Brealey Publishing. 1996: p488-489.
Другие работы по теме:
Letter Essay Research Paper When examining an
Letter Essay, Research Paper When examining an issue it is essential that you look only at the facts and not let your opinion get in the way of what is known to be truth. Such is the case in the
Nixon Essay Research Paper In June 1970
Nixon Essay, Research Paper In June 1970 Nixon signed into law a bill lowering the voting age in federal elections from 21 years of age to 18. In mid 1971, the 26th Amendment to the Constitution, extending the franchise to citizens 18 years of age in all elections, was ratified. In his January 1971 State of the Union message to Congress, Nixon outlined six sweeping proposals.
Medieval Discrimination And Ill Treatment Of Jews
Essay, Research Paper Medieval Discrimination and Ill Treatment of Jews In the later part of the thirteenth century, a stable northern European society began to deteriorate due to widespread inflation and famine. As disease rapidly spread throughout Europe, pessimism and paranoia spread quickly among the people.
Dollarization Essay Research Paper Richard W Stevenson
Dollarization Essay, Research Paper Richard W. Stevenson s article Greenspan View on Wider Use of Dollar discusses a process he refers to as dollarization. According to Mr. Stevenson, A number of countries have been considering abandoning their national currencies and adopting the American dollar the accepted international benchmark of stability as a way of reducing interest rates, inflation, and exchange rate volatility.
Analysis Of 1997 US Macroeconomic Predictions Essay
, Research Paper Analysis of 1997 U.S. Macroeconomic Predictions The U.S. economy ended 1996 at a blistering pace of 4.7% growth rate of real GDP in the fourth quarter. Despite this strong growth, the inflation rate remained relatively low in fact the CPI showed its lowest core growth rate in the last 34 years.
Oh Really Essay Research Paper Oh Reallyyou
Oh Really? Essay, Research Paper Oh Really, you think i am a lark, the dogs they run and bark, but when i say to them, shut up shut up shut up, you say to be nice to them,
Sky 2
Sky & Telescope Essay, Research Paper Patrick Sullivan 2nd hour Astronomy Mr. Wessling Magazine Report Sky & Telescope The Future of the Universe The magazine Sky & Telescope is a very helpful magazine for beginning and amateur astronomers. The magazine contains information on new star clusters, constellations, galaxies, and even possible new planets.
Thomas More Essay Research Paper More
Thomas More Essay, Research Paper More’s purpose in writing utopia was quite clearly to open people’s eyes to the social and political evils of the world around them, e.g. inflation, corruption, maltreatment of the poor, wars for little or no purpose, courtly ostentation, the misuse of power by absolute monarchs, etc.
Canadian GDP Essay Research Paper The output
Canadian GDP Essay, Research Paper The output or GDP of Canada has increased from 1995 to 1999. This means that more people became employed or productivity has risen. With the GDP on the rise, Canada is able
Inflation Essay Research Paper InflationInflation is defined
Inflation Essay, Research Paper Inflation Inflation is defined as ?a period of rising prices when the purchasing power of the dollar is falling.? What this boils down to is that as time goes by the dollar bills worth decreases while at the same time prices rise. Now when I say the dollar bill?s value decreases I don?t mean a dollar reduces to ninety cents.
Control Of Inflation Essay Research Paper The
Control Of Inflation Essay, Research Paper The governments of most developed economies now appear to be primarily concerned with inflation and how to keep it down as opposed to maintaining full employment or restricting the
Greenspan Essay Research Paper Since Alan Greenspan
Greenspan Essay, Research Paper Since Alan Greenspan became chairman of the FED, the country’s economy has reflected many positive results. He has done a terrific job. Allan is a very bright man who is always thinking of ways to prevent problems before they happen in the economic sector of the nation. All economists have been very content with his job just until now.
Greenspan Essay Research Paper Federal Reserve Board
Greenspan Essay, Research Paper Federal Reserve Board Chairman Alan Greenspan vows to promote ?low and stable inflation.? The main goal of the U.S. economy is to maintain price stability. This reduces the likelihood that imbalances could develop that would ultimately undermine the record economic expansion that the U.S. is currently having.
Inflation Has Been More Subdued Than In
The 1970S What Are The Reasons For This And Will They Endure Essay, Research Paper Inflation has been more subdued than in the 1970s. What factors explain this and are they likely to endure?
Gas Prices In The Bay Area Essay
, Research Paper A main source of transportation is the car. People use cars to get around instead of catching public transportation. Even though public transportation like, A.C. Transit and BART, can be very convenient and sometimes cheap. The main problem about having a car is you have to pay for your gas for your own car.
Mercantilism Vs Physiocracy Essay Research Paper Mercantilism
Mercantilism Vs. Physiocracy Essay, Research Paper Mercantilism and physiocracy are two different systems that comprise of ideas involving wealth in the economy. Each system has different views on how wealth starts, and how much government involvement is necessary to have a successful economy.
Full Employment And Gdp Essay Research Paper
ECON 240 Assignment 1 The full-employment rate is an arbitrary level of employment that takes into account frictional and structural unemployment. It is used to calculate equilibrium in the changing labor market. It is difficult to calculate the full-employment rate. Economists first find the natural rate of unemployment; in so many words means that those members of the labor force that really want a job have one.
Election 1984 Essay Research Paper Thank you
Election 1984 Essay, Research Paper Thank you Let’s take a look back at the presidential election of 1984. The primary candidates in this election were Ronald Reagan for Republican, and Walter Mondale for Democratic.
Inflation Essay Research Paper Inflation a rise
Inflation Essay, Research Paper Inflation, a rise in the average level of all prices, is a problem that can affect both developed and undeveloped countries. It occurs when the economy is producing at or near full capacity. As inflation increases, the purchasing power of the dollar decreases. As prices rise, wages and salaries also have a tendency to rise.
Progressive Taxation Essay Research Paper A Discussion
Progressive Taxation Essay, Research Paper A Discussion on Progressive Taxation The United States government taxation system is based off the fundamental progressive taxation theory. Most people don t fully understand the taxation system and question the validity of the system the United States currently has.
Jimmy Carter Essay Research Paper Jimmy CarterEconomy
Jimmy Carter Essay, Research Paper Jimmy Carter Economy can always make or break a president. President Jimmy Carter?s was a Democrat whose administration, that lasted from 1977-1981, was burdened with a recessive economy from the beginning. Inflation was rising rapidly due to the worst oil embargo United States history has ever witnessed.
Barbados Essay Research Paper BarbadosThe Barbados is
Barbados Essay, Research Paper Barbados The Barbados is a small country located in the Caribbean, island between the Caribbean Sea and the North Atlantic Ocean, northeast of Venezuela. It?s about 2.5 times the size of Washington, DC. The population of the country is 256,395, with a growth rate of .25%. 80% of their population is African American and the most common language is English.
Grade Inflation Essay Research Paper What is
Grade Inflation Essay, Research Paper What is the definition of grade inflation? The most obvious definition is that grade patterns change so that the overwhelming majority of students in a class, college, or university receive higher grades for the same quantity and quality of work done by students in the past.
How Are Automatic Stabilizers Used To Combat
Inflation Essay, Research Paper How are Automatic Stabilizers Used to Combat Inflation? In today?s economy, there are devices present called automatic stabilizers. Automatic stabilizers, are mechanisms which aid in the correction of an economic problem without the interference of anyone or anything.
Cheap Decorating Essay Research Paper With today
Cheap Decorating Essay, Research Paper With today’s inflation how can anybody find the money to decorated their ugly boring living room? Well, I have the solution for you, decorate with little money. Just follow these three easy steps and you’ll be on your way to a beautiful room.
Economics Essay Research Paper
Explain why the problem or topic written about in the article is important in the study of economics. This article is important to the study of economics because economics deals with the management of the income, supplies, and expenses of a household, community, government, or other group or organizations.
Big Bang Essay Research Paper Before The
Big Bang Essay, Research Paper Before The Big Bang Every since scientists came up with an idea of how the universe started and was created, through the Big Bang, there has always been discussion and questioning on what the universe was, before it was created. Was there nothing because there was no time and no God, or was there something we haven t discovered yet.
Death On Demand Reaction Paper Essay Research
Paper Death on Demand Reaction Paper Death on Demand was quit interesting. Throughout the novel several economic concepts were cleared up therefore, helping me to better understand them. But also, at the same time I was further confused about several others. I was especially intrigued by the following four concepts, and the characters in the novel helped my understanding of them grow.
SupplySide Economics Essay Research Paper SupplySide EconomicsEssay
Supply-Side Economics Essay, Research Paper Supply-Side Economics Essay Question Supply-Side economics and policies would best benefit the economy in the case of a recession in the year 2000. Supply-side policies are made of several important points to regulate the economy. Supply-side policies consist of stimulating the economy by production, cutting taxes, and limiting government regulations to increase incentives for businesses and individuals.
Do Higher Wages Cause Higher Prices Or
Do Price Rises Cause Wage Rises? Essay, Research Paper Do higher wages cause higher prices, or do price rises cause wage rises?? What are the policy implications in either case?Inflation involves
Federal Monetary And Fiscal Policy Essay Research
Paper The management of the money supply and interest rates is what is known as monetary policy, The Federal Reserve System (the Fed) was established by an Act of Congress in 1913 and consists of the seven members of the Board of Governors in Washington, D.C., and twelve Federal Reserve District Banks.
Minimum Wage Regression Essay Research Paper Jadro
Minimum Wage Regression Essay, Research Paper Jadro 1 John Jadro Webonomics Mr. Haessler 17 February 2000 Minimum Wage Regression The proposed increase in minimum wage will do a number of things to the economy. The greatest effect it has will be on inflation. There is a strong correlation between raises in the minimum wage, and raises in inflation.