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 of: (1) What causes inflation? (2) What are ***** main effects ***** *****? (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 ********** actually is. Inflation can be described as "a rise in ***** gener*****l level of prices, as me*****ured aga*****st some baseline ***** purchasing power." (Wikipedia, 2006) Furthermore inflation may be "regarded as a decline in the ***** power of money." (Ibid) Therefore, this ***** will attempt to understand what causes the purchas*****g power of money to fall, what ***** effects are and what the Federal Reserve Board does to control inflation.


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


The ***** 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 ***** inefficiently sm***** banking sectors ***** equity markets. This effect suggests ***** inflation reduces bank lending to the private sector, which is consistent ***** the view that a sufficiently high rate ***** inflation induces ********** to ration *****." (2006) A*****her effect of inflation as stated by Boyd and ***** is *****:."..***** is negatively associated with real ***** market *****s, real treasury bill rates, and real-***** deposit rates; that is an inflation increases ***** 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 has seen a ***** decline in *****flation rates in recent decades, but concerns about inflation ***** still be warranted, especially in some countries. Evidence is mounting ***** inflation is harmful to economic activity even at fairly modest ***** of inflation because of ***** way


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