You always read in the newspapers that the Federal Reserve will raise interest rates to stop inflation. But nobody ever really explained why Inflation is bad to the layman. Sure, they say inflation means same amount of money can buy less things and that is bad. But that is a mantra which doesn't really explain, why it seems to me the chief purpose of the Fed is to fight inflation, and not fight deflation. All periods of economic growth will have a degree of inflation. As we have seen from Japan's 14 year experience from 2000 to only recently, deflation can be bad too, with no jobs and low GDP growth. So explain to me why inflation is bad, in detail. I want to put the best answers on my blog at http://randomthoughtsofanagingbabyboomer.blogspot.com
Thank you
2006-09-22 08:34:42 · 7 answers · asked by tiankhean 1 in Business & Finance ➔ Other - Business & Finance
Practically every economist will tell you that
- a little bit of inflation is a good thing
- a lot of inflation is a bad thing
A little bit of inflation is like a tax on idle money. It prompts people to get their money out of the mattress (or low interest accounts) and put it to work on investments.
A lot of inflation prompts people drives money out of economy-driving investments and into inflation-proofing investments (gold, collectibles, etc). For instance, if you knew inflation was going to be 12% and you were getting 10% on your investment, you might pull your money and buy gold (which does nothing for the economy).
Deflation makes idle money profitable so no one, not the Fed or economists, wants to see deflation. If deflation was a risk today, you would see the Fed trying to fight it.
2006-09-26 06:39:38 · answer #1 · answered by gray shadow 6 · 2⤊ 1⤋
Why Is Inflation Bad
2017-01-20 17:08:17 · answer #2 · answered by ? 4 · 0⤊ 0⤋
The down area is that salaries do not consistently go up with inflation step for step and to the comparable degree. very few cases does it actually try this. additionally, it hurts international commerce if different countries do not inflate to the comparable degree. The dollar's paying for capacity foreign places will become weaker, and then we gained't return and forth like we could ten years in the past, or purchase imports on the comparable relative cost.
2016-12-15 12:30:33 · answer #3 · answered by ? 3 · 0⤊ 0⤋
All extreme flucuations in the economy can be bad. The Fed works to keep us on an even line. Not too fast, not too slow. Trying to achieve sustainable growth while limiting growth sapping inflation. If we were heading into a depression, they would propably be trying to slow down the depression while limiting over-spending / taxation
2006-09-22 08:40:59 · answer #4 · answered by roamin70 4 · 1⤊ 0⤋
well, take for example what's happened in the past thirty years...the price of living goes up, but wages don't go up as quickly. so, in the seventies, as compared to now, you could afford more for the pay you got. that's probably part of the reason there are so many more dual income families now. when it comes to the cost of living, the dollar just doesn't go as far anymore.
2006-09-22 08:44:58 · answer #5 · answered by practicalwizard 6 · 2⤊ 0⤋
Inflation is good for balloons and tires.
2006-09-22 08:42:09 · answer #6 · answered by Anonymous · 5⤊ 3⤋
how dumb are u
2015-01-26 05:51:07 · answer #7 · answered by Ezra 1 · 1⤊ 2⤋