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Impact of Inflation

Inflation is the most commonly used economic term in the popular A Nexis search in 1996 found 872,000 news stories over the past twenty years that used the word inflation. "Unemployment" ran a distant second. Public concern about inflation generally heats up in step with inflation itself. Though economists do not always agree about when inflation starts to interfere with market signals, the public tends to express serious alarm once the inflation rate rises above 5 or6 percent. Public opinion polls show minimal concern about rising prices duringthe early 1960s, as inflation was low. Concern rose with inflation in the late 1960sand early 1970s. When inflation twice surged to double-digit levels in the mid andlate 1970s, Americans named it public enemy number one. Since the late 1980s,public anxiety has abated along with inflation itself. Yet even when inflation is low, Americans tend to perceive a morality tale in its effects. A recent survey by Yale economist Robert Shiller found that many Americans view differences in prices over time as a reflection of fundamental changes in the values of our society, rather than of purely economic forces. Economists think of inflation more plainly as a "sustained rise in the general level of prices." Their concerns focus on questions such as whether inflation distorts economic decisions. Very high inflation adversely impacts economic performance, as evidence from cross-country studies shows. Likewise, moderate levels of inflation can distort investment and consumption decisions. Recent U.S. exp...

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