The Inflation And Inflation Prediction Essay

1. What is inflation? Inflation is an increase in prices for goods and services (What is Inflation?).

This task request will be focussed on providing input for the development of Inflation Working Paper (WP) currently in draft phase. The recent version of the WP is attached for your reference purpose only.

The phenomenon of inflation has been described in three different views: a) general view, b) Keynesian view and c) modern view. According to the general view it has been described as the increase in the price of goods and services but decrease in the value of the money. According to Keynes, it is the states when there is increase in the goods and prices as well as increase in the employment. The inflation is caused due to the increase in the expenditure that causing the shortage of the goods and

Inflation has been below the Federal Reserve’s target for more than 3 and a half years. Inflation is expected to keep declining under desired target as long as the oil prices are declining as well. “Yield movements in the Treasury inflation-protected securities, or TIPS, market indicate that compensation for inflation expected in five to 10 years has dropped to 1.56% annually, according to Barclays. That is down from 1.67% when the Fed raised short-term rates in December. Moreover, it is down from 2.5% two years ago” (Leubsdorf). If less inflations is expected in the future, it could change the way people are spending their money, but if they assume that the inflation is going to keep increasing, the prices are more likely to keep rising at a faster pace.

Economic inflation is large issue that tends to take place everywhere, this has even appeared in the early days of the United States. To be exact, inflation is the rise sustained in the general level of cost on services and goods over time in an economy. When the cost level grows the unit of currency buys less services and goods. Some causes for inflation include: push in profit, productivity decline, increase in house prices and the printing of more money. Often times these result in services and goods becoming less affordable due to an increase in prices.

Inflation in America has been on the rise in the past decade. As the goods needed continue to increase, the cost goes higher. “I haven’t yet defined the word “inflation.” Now we’re ready: inflation is a rise in the general level of prices as measured by a price index like the CPI. Inflation is not a rise in the price of a particular good or service, such as gasoline. An increase in real gas prices is called an increase in the relative price of gas. And the rise in the nominal price of gasoline is meaningless since it doesn’t compare gas prices to any standard such as a price index or the price of another good.” (Luis D Johnson March 21st, 2012)

The relationship between inflation and unemployment is a topic, which has been debated by economists for decades. It is this debate that has made the opinions about it evolve. In this essay, the controversial topic will be discussed by viewing different economists’ opinions on that according to time sequencing.

Inflation is significant in an economy as it in a large part relates to the price stability within the U.S. If the inflation rate within the U.S is high, variable, or both, it can greatly interfere with an economies ability to efficiently operate and, in turn, can reduce or prolong economic growth. The Committee has specified the long-run goal for inflation to be at two percent. This measure of inflation in the economy is determined by the PCE index of personal expenditures. The Federal Reserve’s statutory mandate of a two percent long-term goal of PCE inflation is consistent with the ability of the committee to foster price stability and maximum unemployment in the long run.

Over the course of a year, if the value of the Australian Dollar were to decrease 10%, the Australian inflation rate were to increase 5%, the price of oil was to increase to $100 per barrel and the Australian unemployment rate were to jump to 10%, I would predict people would start jumping out of windows. The suicide rate would skyrocket and there would probably be a political upheaval some sorts. Maybe these are overstatements but who knows, maybe they are understatements.

Inflation is defined as “the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.”[1]

In the last century 70’s, during the debate regarding economic industry, Freedman who is a simple proof of the hypothesis of the trade-off between inflation and unemployment is only a temporary phenomenon, the first. In addition, he believes that, in the long run, there is no such trade-off. Friedman correlation analysis on inflation and unemployment is his pioneering work in international economics. In a 1950 paper, Freedman is an advocate of free-floating exchange rate. This article written in a Bretton Woods Agreement, and the subsequent creation of the International Monetary Fund and its fixed exchange rate, the World Bank, is the prevailing wisdom. Freedman's analysis of how to exercise, a flexible exchange rate will improve the balance of payments is a pioneering adjust the real. He critically tears parameters, a flexible exchange rate would encourage instability and his position is about 20 years later, when the world moved to a flexible exchange rate system.

Because inflation is one of the most crucial indexes for citizens and government to evaluate the overall performance of a country’s economy, it has been widely examined and analyzed by economists throughout history. Back in the 18th century, though the term “inflation” was not adopted by writers focusing on the science of economics yet, two influential thinkers in Europe already included their view about the cause and subsequent effect of a general rise in price for goods in their works. During the period when gold and silver were still the major types of money in circulation, David Hume and Adam Smith both described the ensuing effect in the society of an increase in the money supply: prices would be relatively higher and inflation would occur. While Hume writes mostly on the intermediate situation between the increase of money supply and the rise of price level, Smith focuses on the effect that inflation has on creditors and borrowers. The authors explain the process and effect of inflation in two different ways and hold dissimilar attitude toward inflation. Although they both agree on the increase of species as the cause of inflation, Hume concentrates his investigation on the labor market and claims that inflation benefits the whole society in the short run while Smith considers price inflation from the perspective of finance and maintains that it leads to unfair redistribution of wealth.

According to the case study, “experts” are attributing this strong inflationary force to a variety of factors: high fiscal deficit, populist policies that are creating demand, poor supply response in agriculture that is due to lack of investment, and the poor investment climate arising from the lack of reforms and a series of political scandals, among others.

Inflation is a sustained increase in the general level of prices for goods and services

I Poonam Pillai hereby declare that the term paper report titled study on Inflation in India that I have submitted is original. I was in regular contact with nominated guide and contacting him for discussing the project.