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ECONOMIC THEORY

S. is actually a two-edged economic sword, one that slices economic growth but one that also slices inflation, interest rates and affords consumers more choice.

"Fed Officials Say Risk of Inflation, Slowdown Are Even." The Atlanta Journal and Constitution. Sept. 15, 1998: (C06; C08) 1.

Inflation is an important aspect of the economy. It is important because it is a key indicator of economic health and it is integrally related to other factors of the economy such as unemployment and interest rates. Inflation occurs because price increases outdistance wage increases and consumers find their money possesses less purchasing power. Inflation disrupts regular economic activity and prompts government officials to use constraining measures to control it because it decreases consumer spending (lowering the demand for goods and services) and also devalues stocks and bonds. Investment in business declines, employees demand higher wages and home sales drop from the effects of high inflation. The Federal Reserve Bank has the ability to control the cost of money through manipulation of the long-term borrowing interest rate. One of the biggest economic factors that makes experts worry about inflation growing is the employment level. When unemployment is very low, as it has been in the U.S. for the past five years, worries of inflation begin to grow. This often prompts the Chairman of the Federal Reserve, Alan Greenspan, to tighten monetary policy in an effort to keep inflation levels low. This article suggests that despite tight labor markets the typical worries and reactions that occur regarding inflation are not materializing, "Despite the tight labor markets, there are not any large inflationary pressures in the present period," said the president of the Federal Reserve Bank in Atlanta, adding, "he was glad in retrospect that the Fed didn't tighten monetary policy when the unemployment rate reached a point where some thought it wou...

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ECONOMIC THEORY. (1969, December 31). In LotsofEssays.com. Retrieved 16:39, December 21, 2014, from http://www.collegetermpapers.com/viewpaper/1303819398.html
 
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