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

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The 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 answering the questions set out in this research is to understand precisely what *****flation actually is. Inflation can be described as "a r*****e in the general level of prices, as me*****ured against some baseline of purchasing power." (Wikipedia, 2006) Furthermore inflation may be "regarded as a decline in the ***** power of money." (Ibid) Therefore, this ***** will *****ttempt to understand what causes the purchasing power ***** money ***** fall, ***** ***** effects 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 power and in fact there are several aspects to ***** as follows: (1) Monetary inflation; (2) Price inflation; and (3) Real inflation. ((***** Inflation: *****, What's ***** Worry About Anyway?, 2004) According to ***** ***** '***** 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 About Anyway?, *****) ********** forces are stated to be ***** should be actually spoken of in relation ***** inflation. Inflationary forces ***** stated to include: "all forces that increase demand without relationship to supply, or that decrease ***** without any relationship to *****." (Understanding Inflation: So, ***** To ***** About Anyway, 2006) *****me of these 'inflationary forces' are: (*****) increase in imports unaccompanied by an ***** in exports; (2) Economic dependency and adverse credit shifts; ***** (3) a ***** liquidation of savings and reserve assets. (*****)


The work of Boyd & Champ entitled: "Inflation, Banking and Economic Growth" states several effects of inflation. The first being that: "Several economists have found that countries with high inflation rates ***** inefficiently sm***** banking sectors and equity markets. This effect suggests ***** inflation 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 credit." (*****) Another effect of inflation as stated ***** ***** and Champ is *****:."..***** is negatively associated with real money market *****s, real treasury bill rates, and real-time deposit rates; that is an inflation increases the real rate of return on ********** instruments **********." (2006) 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 ***** additionally state that: "The world has seen a dramatic decline in inflation ********** 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 inflation *****cause of the way


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