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


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INFLATION: CAUSES, EFFECTS AND THE FEDERAL RESERVE BOARD

OBJECTIVE

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 *****?

INTRODUCTION

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

I. CAUSES OF INFLATION

According to the work entitled: "Understanding Inflation: So, What'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: *****, What's ***** Worry About Anyway?, 2004) According ***** this ***** '***** Inflation' is: "...***** rate at which infl*****ionary causes would impact price levels if all inflationary causes were considered ***** the time gap eliminated." (Understanding Inflation: So, What's To Worry ***** Anyway?, 2004) *****ary forces are stated to be what should be actually spoken of in relation to *****flation. Inflationary forces are stated ***** include: "all forces that increase demand without relationship to supply, or that decrease supply without any relationship to demand." (Understanding Inflation: So, ***** To Worry About Anyway, 2006) Some of these '***** forces' *****: (*****) 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. (*****)

II. EFFECTS OF *****

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

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