Essay on Inflation And Its Effects On The Economy

772 Words 4 Pages
Inflation is defined as a sustained increase in the general level of prices for goods and services (Investopedia.com). As inflation goes up, every dollar ends up buying a smaller percentage of goods and services and a decline in the purchasing power of money. The opposite of inflation would be deflation where the general level of prices keep falling. As could be imagined there are negative effects of inflation including uncertainty in the economy and the possibility for domestic products to have a lessor value. For individuals inflation can make it very difficult to maintain a standard of living if on a set income. At the same time inflation shows that the economy is growing, if inflation is occurring at a high percentage it could also cause issues. The opposite holds true in that if there is little inflation, the economy is most likely getting weaker.
In the United States the inflation rate target has remained below the 2% target in the last four years which is the Fed’s preferred area. In the graphic below we can see the inflation rates since 2006 and how they have changed along with the economy. As we can see right now for 2016 our inflation rate is about 1% which is an increase over the prior 2 years. In the article titled ‘If the Fed wants more inflation, it should say so’ from the Economist website it mentioned the high possibility that inflation will rise above 2%. Janet Yellen who is the Fed’s chair, was asked about how a higher inflation rate. I did find her…

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