StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Inflation and Monetary Policy - Admission/Application Essay Example

Cite this document
Summary
For many governments, inflation is considered as a sign of economic development. At the same time, governments set up limits, where…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER95.1% of users find it useful
Inflation and Monetary Policy
Read Text Preview

Extract of sample "Inflation and Monetary Policy"

Zero Inflation Inflation is concerned with the rise in the price in the goods and services in a local economy, which reduces the buying power of the individuals. For many governments, inflation is considered as a sign of economic development. At the same time, governments set up limits, where as inflation percentage exceeding a predetermined level will cause serious threats to the economy. Many factors are considered to be the main cause of inflation. The worst cause of extreme rise in inflation is observed when governments attempt to print excess amount of money in order to recover the already increased inflation.

Resultantly, they end up becoming another cause of prices getting even higher. Consequently, inflation gets even higher. Among other causes, rise in production costs, and excessive international lending and borrowing. Governments aim to controlling inflation as their primary economic concern, and do help the domestic economy through various means to inflation rise but at a controlled pace. Most of the countries believe in zero inflation phenomenon, but the economic history suggests that inflation leads to the economic development.

Therefore, the countries tend to make the policies which make inflation rise but at a controlled pace, so as to create a balance between zero inflation scenario and worst inflation causes. Additionally, most of the economists believe that the inflation should be relatively low, but they do not rule out the possibility of inflation completely wiped out of an economy. This means they do desire the inflation to be the integral part of the economy, and tend to avoid the state of zero inflation. Therefore, most of the economists do have the consensus about inflation of x% rather than that 0%.

The Federal Reserve must understand the inverse relationship between inflation and unemployment, i.e. rising inflation will cause lesser unemployment. This has been represented through ‘Phillip’s curve’, which suggests that the zero inflation case would consistently cause the unemployment levels to rise. There has historically been observed to be a stable relationship between high but controlled inflation and lesser unemployment rates. During 1950s in US, the economists were of the opinion that positive inflation rate was enviable.

This period was also noted as a stable one as the economy experienced an inverse relationship between unemployment rates and inflation. On the other hand, the economists suggested that a case of zero inflation will cause the unemployment rates to get higher. In this scenario, the economists started searching for the middle approach instead of implementing zero inflation policies as the middle approach would balance the unemployment rates to a minimum level, where the economic development is also achieved at a desirable rate due to rising but controlled inflation.

It can therefore be argued that the Federal Reserve should not opt for the zero-inflation policy as it would result in the unemployment levels to rise as was the case in 1970s and 1980s in USA. The Federal Reserve should rather aim for controlled inflation which should be set by the economists considering the economic circumstances facing the country, but it must be kept sure that the inflation rises must also be limited. Work Cited:Mysmp.com (2010). Inflation. Retrieved November, 2010, from http://www.mysmp.com/bonds/inflation.

html Amadeo, K. (2010). How does inflation impact my life? Retrieved November, 2010, from http://useconomy.about.com/od/inflationfaq/f/infl_impact.htm Sumner, S. (2009). We need inflation to spur a recovery. Retrieved November, 2010, from http://moneywatch.bnet.com/economic-news/blog/blog-war/we-need-inflation-to-spur-a-recovery/447/ Franklin, M.B. (2009). Why zero inflation is bad for you. Retrieved November, 2010, from http://articles.moneycentral.msn.com/RetirementandWills/InvestForRetirement/why-zero-inflation-is-bad-for-you.

aspx Economywatch.com (2010). Benefits of zero inflation. Retrieved November, 2010, from http://www.economywatch.com/inflation/zero.htmlHarford, H. (2007). Price fighters across the world, central bankers aim to keep inflation low, but alive. Why not try to eradicate it altogether? The Financial Times, 11-12. Retrieved November, 2010, from http://proquest.umi.com/pqdweb?index=0&did=1325583471&SrchMode=1&sid=1&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1208793226&clientId=29440 Billi, R.M. & Kahn, G.A. (2008).

What is the optimal inflation rate? Economic Review – Federal Reserve Bank of Kansas City, 93(2), 5-29. Retrieved November, 2010, from http://proquest.umi.com/pqdweb?index=4&did=1551327061&SrchMode=1&sid=2&Fmt=3&VInst=PROD&VType=PQD&RQT=309&VName=PQD&TS=1244648044&clientId=29440 Marquis, M. (2004). Inflation: the 2% solution. Federal Reserve Bank of San Francisco. Retrieved November, 2010, from http://www.frbsf.org/publications/economics/letter/2001/el2001-03.html

Read More
Tags
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Inflation and Monetary Policy Admission/Application Essay”, n.d.)
Inflation and Monetary Policy Admission/Application Essay. Retrieved from https://studentshare.org/business/1587218-inflation-and-monetary-policy
(Inflation and Monetary Policy Admission/Application Essay)
Inflation and Monetary Policy Admission/Application Essay. https://studentshare.org/business/1587218-inflation-and-monetary-policy.
“Inflation and Monetary Policy Admission/Application Essay”, n.d. https://studentshare.org/business/1587218-inflation-and-monetary-policy.
  • Cited: 0 times

CHECK THESE SAMPLES OF Inflation and Monetary Policy

Keynesian Theory of Inflation and Unemployment

KEYNESIAN THEORY OF inflation and UNEMPLOYMENT By Student's Number: Class: Introduction According to the Keynesian theory, unemployment is mainly attributed to lack of sufficient aggregate demand for services and goods in a given economy since both creates opportunities for everyone interested in working.... inflation, on the other hand, referrers increase in prices of products and services in any given economy, with a particular period duration.... Disequilibrium positions of inflation Keynes disagrees with the economists of the classical argument....
5 Pages (1250 words) Essay

Should the Fed Focus on the Role of Money in the Conduct of Monetary Policy

Name Professor Course Date Should the Fed Focus on the Role of Money in the Conduct of monetary policy?... The government can influence these factors through monetary policy (MCcallum 1787).... Should the Fed Focus on the Role of Money in the Conduct of monetary policy?... The government can influence these factors through monetary policy (MCcallum 1787).... In this paper, I want to argue if the Fed should focus on the role of money in the conduct of monetary policy (Khan & Benolkin 8)....
3 Pages (750 words) Research Paper

Different Strategies to Conduct Monetary Policy

INTRODUCTION monetary policy is a way by which a countries authority controls the supply of a country's money, in many cases aiming a rate of interest for the intention of promoting economic developments and stability.... monetary policy is often at times based on the relationship between the rates of interest of an economy, the cost at which money can be loaned and the total supply of money.... monetary policy is one of public intervention measure around at influencing the level and pattern of economic activity so as to achieve certain desired goals....
8 Pages (2000 words) Research Paper

Monetary Policy, Inflation, and Oil Price

The assignment “monetary policy, Inflation, and Oil Price» explains how in an open economy a country's central bank uses monetary policy to achieve success in the domestic economy.... The author outlines the effects of such monetary policy on price expectations in the central bank's inner economy.... In the statement being analyzed, Central Banks are able to avoid wage-price spirals (which are considered P in the TQM) by pursuing a contractionary monetary policy....
3 Pages (750 words) Assignment

Inflation Targeting Policy for Bank of England

We will also analyze the factors which were responsible for a change in monetary policy in 1992, and the stance of Bank of Any government has the power to regulate the economy of the country and not only does it regulate the economy, it has a vital role to ensure that the economic condition remains stable.... Government of England has entrusted the job of determining the monetary policy, in the hands of Bank of England.... The Bank comes out with the monetary policy in order to ensure a certain key objectives like, delivering price stability with a low inflation level coupled with an objective to support the Government's economic objectives of growth and employment....
6 Pages (1500 words) Essay

Lowest Unemployment Rate on Record for New Zealand

The paper intends to do this by gathering relevant information on unemployment, economic growth, Inflation and Monetary Policy in New Zealand and evaluate it in relation to relevant theories so as to gain a reasonable basis for explaining seeming controversies identified above.... Is tight monetary policy contributing to the slow economic growth of the country?... More… This has prompted analysts, economists; policy makers, educationists, etc to ask whether the above facts are interrelated....
5 Pages (1250 words) Essay

How have goverment policies affected the exchange rate over the period 2012/13

The Impact of Government Policies on Exchange Rate The basic aim of targeting the exchange rate isto provide a link between Inflation and Monetary Policy in a country with that of others.... The management of exchange rates is a part of the monetary policy adopted by a country and the declined value of Sterling indicates that the government is interested in increasing exports and most of the businesses seem to be unaffected by the weakened sterling that may result in increased costs in importing raw materials (PwC, 2013)....
1 Pages (250 words) Essay

How Inflation Targeting Operates in the UK

This is an indicator of the numerous benefits of inflation targeting as an effective mechanism of managing Inflation and Monetary Policy.... "How Inflation Targeting Operates in the UK" paper discuses inflation targeting, as a monetary policy mechanism that has been adopted and extensively applied in several countries in the past two decades.... Inflation targeting offers a new formula for inflation management and overall formulation and application of monetary policy....
7 Pages (1750 words) Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us