ost economists go by to judge inflation, are not completely accurate. There are many goods in the market today that greatly increased their quality while maintaining or even reducing their prices. A great model for this are the new personal computers. Todays computers are more powerful and faster than the older models of just a few years or even months ago. Somehow, through the wonders of technology, they manage to make these great new computers at lower prices than the old ones. This is just one reason why the inflation rate is so much lower than what the Consumer Price Indexes in comparison to the Phillips Curve would lead you to believe. In fact, as of 1996, the consumer price inflation was running at an annual rate of about 3 percent. It had been holding relatively steady at this percentage for the previous four years as well. That percentage was absolutely amazing considering the unemployment rate, at that time, was at a seven-year low of just over 5 percent.CONCLUSION: From my research, I have concluded that inflation is definitely an unwanted and usually unneeded aspect of a good economy. The main concept of the Phillips Curve is fine; it just needs to be updated. They need to reevaluate the weight of the prices for the different goods. They also need to update the overall list of important goods in the typical budget (attached is a recent Consumer Price Index listing and charts). This new listing would have to include all the latest goods that werent as important in the past. The Phillips Curve should also start taking into consideration the ratio of the quality that the good has increased to the price that it has increased. 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 upo...
