inflation?

what is the meaning of inflation oand the ways in which it hinders economic progress within a market economy?

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  • 1 decade ago
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    Inflation hinders the market because it reduces the ability for consumers to consume. It is basically an extra sales tax.

    Inflation is caused by having way more money dumped into the economy, than we can match with the amount of products we have created. Economists describe it as "too much money 'chasing' too few goods."

    Inflation is usually measured by the price of common goods, known as a Consumer Price Index. This information is published by the US Bureau of Labor Statistics.

    Most people don't know that the Federal Reserve controls the amount of money that is put into our economy. It is the Federal Reserve that decides how much money to put into the economy. Specifically, they have created the 12-person Federal Open Market Committee to handle most of it; it consists of 5 bank presidents and 7 federal advisors.

    The Federal Reserve has a history of allowing the buying power of the US dollar to diminish. Total inflation for the 250 years before the Federal Reserve is believed to have been near zero. In less than 100 years under the Federal Reserve, inflation has totaled over 2,080% based on the CPI numbers from their website. This is an average of 3.4% per year. But over 2007, prices of common goods had increased by another 4.1%. http://www.bls.gov/cpi/#tables

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  • Anonymous
    1 decade ago

    by Lee Ann Obringer

    Inside This Article

    1. Introduction to How the Fed Works 2. Why do we need the Fed? 3. Inflation 4. Recession 5. Fed Tasks 6. Fed Tasks: Monetary Policy 7. Fed Tasks: Financial Institution Regulator 8. Fed Tasks: The Government's Bank 9. The Fed Tool Box: The Reserve Requirement 10. The Fed Tool Box: The Discount Rate 11. The Fed Tool Box: Open Market Operations 12. The Fed Setup: Decentralization & Board of Governors 13. The Fed Setup: Directors, Regionals, FOMC 14. Economic Indicators 15. Economic Indicators: Leading, Coincident, Lagging 16. How does the Fed support itself? 17. Checks and Balances 18. Lots More Information 19. See all Money & Economic Basics articles

    Inflation

    Inflation is not a good thing because it slows down economic growth.

    For example, when inflation is high, things cost more and people spend less. They also do less long-term planning that involves spending money, such as building houses and investing. Businesses are affected in the same ways. When inflation is high, it tends to fluctuate quite a bit. This uncertainty makes people wary of spending money for fear that inflation will increase even more and they won't be able to pay their bills.

    High inflation also adds additional costs to long-term interest rates. These costs are to offset the risk associated with inflation. The additional costs make borrowing money less attractive. When people don't buy things (when demand is down), then the supply of goods gets too high, production has to decrease, and unemployment increases -- in other words, recession hits.

    When prices are stable (when inflation is low), consumers make more purchases, investments, etc., production output is maintained and employment remains high.

    PREVIOUS NEXT Inside This Article

    1. Introduction to How the Fed Works 2. Why do we need the Fed? 3. Inflation 4. Recession 5. Fed Tasks 6. Fed Tasks: Monetary Policy 7. Fed Tasks: Financial Institution Regulator 8. Fed Tasks: The Government's Bank 9. The Fed Tool Box: The Reserve Requirement 10. The Fed Tool Box: The Discount Rate 11. The Fed Tool Box: Open Market Operations 12. The Fed Setup: Decentralization & Board of Governors 13. The Fed Setup: Directors, Regionals, FOMC 14. Economic Indicators 15. Economic Indicators: Leading, Coincident, Lagging 16. How does the Fed support itself? 17. Checks and Balances 18. Lots More Information 19. See all Money & Economic Basics articles

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  • Anonymous
    1 decade ago

    inflation means it takes more 'dollars' to equal the value of one dollar. usually that happens when more and more money is printed without real backing...like whats happened recently..it hinders progress because the money becomes more and more worthless.

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