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 ***** Federal Reserve Board control inflation?

INTRODUCTION

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

I. ***** 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 ***** inflation as follows: (1) Monetary inflation; (2) Price ***** and (3) Real inflation. ((Understanding Inflation: *****, What's To Worry About Anyway?, 2004) According to ***** ***** '***** Inflation' is: "...the rate at which inflationary causes would impact price levels if all inflationary causes were considered and the time gap eliminated." (Understanding Inflation: So, What's To Worry ***** Anyway?, 2004) ********** forces are stated ***** be ***** should be actually spoken of in relation to inflation. Inflationary forces are stated to include: "all forces that incre*****e demand without relationship ***** supply, or ***** decrease supply without any relationship to demand." (Understanding Inflation: So, What's To ***** About *****, 2006) Some of these 'inflationary forces' are: (*****) increase in imports unaccompanied by an increase in exports; (2) Economic dependency and adverse credit shifts; ***** (3) a general liquidation of savings and reserve assets. (Ibid)

II. EFFECTS OF *****

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

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