Essay - Inflation: Causes, Effects and the Federal Reserve Board Objective the...

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***** objective of this work is to answer the questions *****: (1) What causes inflation? (2) ***** are the main effects of inflation? (3) How does the Federal Reserve Board control inflation?


The first step in answer*****g the questions set out in this research is ***** understand precisely what inflation actually is. Inflation can be described as "a r*****e in ***** gener*****l level of prices, as measured aga*****st some baseline ***** purchasing power." (Wikipedia, 2006) Furthermore ***** may be "regarded as a decline in the ***** power of money." (Ibid) Therefore, this work will attempt to understand what causes the purchas*****g power of money to fall, what ***** ***** are and what the Federal ***** Board does to control inflation.


According to the work entitled: "Understanding Inflation: So, What's To Worry About, Anyway? inflation is not just concerned with monetary purchasing ***** and in fact there are several aspects ***** ***** as follows: (1) Monetary *****flation; (2) Price inflation; and (3) Real inflation. ((***** Inflation: *****, What's To Worry About Anyway?, 2004) According to ***** work '***** Inflation' is: "...the rate at which inflationary causes would impact price levels if all inflationary causes were considered ***** the time gap eliminated." (Understanding Inflation: So, What's To Worry ***** Anyway?, *****) Inflationary forces are stated to be what should be actually spoken of in relation to *****flation. ***** forces are stated to include: "all forces that incre*****e demand without relationship to supply, or ***** decrease ***** without any relationship to *****." (Understanding Inflation: So, ***** To ***** About *****, 2006) Some of these 'inflationary forces' *****: (1) increase in imports unaccompanied by an ***** in exports; (2) Economic dependency and adverse credit shifts; ***** (3) a general liquidation of savings and reserve as*****s. (Ibid)


The work of Boyd & Champ entitled: "Inflation, Banking and ***** Growth" states ***** effects of inflation. The first ********** that: "Several economists have found that countries with high inflation rates have inefficiently small banking sec*****rs ***** equity markets. This effect suggests ***** ***** reduces bank lending to the private sec*****r, which is consistent with the view that a sufficiently high rate of inflation induces *****s to ration *****." (2006) A*****her effect of ***** as stated ***** ***** and Champ is *****:."..***** is negatively associated with real money market *****s, real treasury bill rates, and real-***** deposit rates; that is an inflation increases the real rate of return on these instruments *****s." (*****) Last, but not least Boyd and Champ state that:."..most importantly, we find that ***** has a dramatic negative impact on the profitability of banks." (2006) ***** and Champ additionally state that: "***** world has seen a dramatic decline in inflation rates in recent decades, but concerns about inflation may still be warranted, especially in some countries. Evidence ***** mounting that inflation is harmful to economic activity even at fairly modest rates of ***** because of ***** way


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