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

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


The first step in answering ***** questions set out in this research is ***** understand precisely what ********** actually is. Inflation can be described as "a r*****e in the general level of prices, as measured against some baseline ***** 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 of money to fall, ***** ***** effects are and what the Federal ***** Board does to ***** inflation.


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


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


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