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The Importance of Inflation

According to an article written by Rebecca Hellerstein published on the Federal Reserve Bank of Boston website, economists define inflation as a sustained rise in the general level of prices. High inflation is bad for the economy. High inflation adversely effects economic performance. Even moderate levels of inflation can distort investment and consumption decisions. Reducing inflation also has costs associated with the including lost output and higher rates of unemployment. The goal of the United States government is to maintain low and relatively stable levels of inflation in the 2 percent to 3 percent per year range.

Americans who are most concerned about a high rate of inflation are those who are on fixed incomes including retirees. Retirees fear that inflation will cause prices to rise and their standards of living to fall. Hellerstein's essay contained the following graph showing inflation rates for a forty year period in the United States:

According to an essay by Kimberly Amadeo published online by, high rates of inflation harm consumers by affecting their standard of living. During periods of high inflation, individuals must pay more and more for goods and services. If their income does not increase as fast as the rate as inflation, they will find their standards of living declining. It is also important to remember that high rates of inflation do not impact all goods and services equally. It is likely that some products such as gasoline might see dramatic increases in price during periods of high inflation, while other goods such as houses may actually lose value notwithstanding the fact that the economy is experiencing a high rate of inflation (Amadeo, 2008).

According to an essay published online by the Pacific Investment Management Company, inflation affects all aspects of the economy, from consumer spending to business investment and employment rates. In


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The Importance of Inflation. (1969, December 31). In Retrieved 23:25, February 26, 2017, from