Inflation Essays -- Economics

Inflation INFLATION CAN OUR ECONOMY GROW WITHOUT IT? INFLATION CAN OUR ECONOMY GROW WITHOUT IT? What is inflation? The definition of inflation, according to Webster’s Revised Unabridged Dictionary, is â€Å"an undue expansion or increase, from overissue.† Although, Webster’s is considered by most to be the overall best dictionary, WordNet states the meaning of inflation a lot clearer by saying, â€Å"it’s a general and progressive increase in prices.† It occurs when the value of goods rises faster than the value of money. The usual approximate measure of this is the Consumer Price Index, which weigh the prices of different goods according to importance in a typical budget and then shows how much the prices of these goods have increased. This immediately raises some problems; for example, the weight of the goods must change over time. The importance of computers was not measured in the price index 100 years ago. Another problem is the failure of the price index to capture changes in quality. The qualit y of a good may have improved by 20%, while the price has only risen by 10%. The consumer price index doesn’t feel this should be a factor, but many would disagree. Hence, inflation is not easy to define in practice. This should be kept in mind when discussing how to defeat inflation. There have been numerous theories on how to defeat inflation and even some theories on whether, or not, it should be defeated at all. Some say that inflation is not only expected, but often, needed. Economists believe that in order for the economy to expand and grow, there has to be some level of inflation. Therefore, the opposite holds true as well. If you want to lower inflation, you have to accept a semi-standard economy. They call this tradeoff the Phillips Curve. The Phillips Curve is thought to be the â€Å"proper† way of balancing economic growth and inflation. For this reason the Federal Reserve is always looking for the perfect equilibrium at which we can maximize our economic growth while keeping inflation as minimal as possible. They do this by increasing and decreasing interest rates. Although, Economists and the Federal Reserve abide by the Phillips Curve as a general rule for not letting inflation get out of hand, it has been proven many times in the past that it is possible to have a very healthy and prosperous economy without raising inflation at all. There are even exa... ...creased. This would show a truer relation of the prices of goods to the inflation of the economy. I can see the Federal Reserves reasoning behind raising interest rates to slow down the economy and lower inflation, but they need to realize that the rate of inflation is not completely dependant upon the rise and fall of the economies well-being. The past has proven to us numerous times that the economy is quite capable of being stable and prosperous without effecting the inflation rate in a negative way. That’s why I feel that it would be in the nations best interest to continue letting the economy expand into bigger and better things without raising interest rates to unneeded proportions. WORKS CITED Forbes, Steve. â€Å"Bad Idea Begets Bad Economy.† Forbes. Oct. 9, 1995: p23. Dentzer, Susan. â€Å"Honey, I Shrunk the Price Tag.† U.S. News & World Report. Sept. 23, 1996: p72. Forbes, Steve. â€Å"Stop Stunting Our Prosperity.† Forbes. Oct. 16, 1995: p27. â€Å"Inflation.† Hypertext Webster Gateway. Jan. 20, 1999: internet. http://work.ucsd.edu:5141/cgi-bin/http_webster?inflation Bootle, Roger. â€Å"Chapter 2-Prices.† The Death of Inflation. Nicholas Brealey Publishing. 1996: p488-489.