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Cause Of Inflation Essay

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Causes of Inflation Inflation is defined as an increase in the expected price level and has been the signal for an improving economy, but it has also weakened an economy due to the unemployment it usually produces which usually hurts the Middle class the most. A healthy rate of inflation means an expanding economy due to higher tax revenues for the government and higher wages for businesses that are booming due to the high demand of their products. But if inflation surpasses of what is expected than employer will have to reduce wages to meet these new prices. When the Federal Reserve creates inflation most argue that this is robbing people of the money that they have saved because they have to use it due to the rise in prices. Printing…show more content…
As a result of this economic growth families will begin to feel more confident and will begin to spend more of their money instead of saving it because they believe that will receive a pay raise or will find a better job. (Amadeo, 2016) Borrowing also increases when economic activity is high people begin to borrow from banks and other places because they feel that the government has been doing a great job managing the economy. (Amadeo, 2016) As we have seen in 2008 people should never get to confident in the economy because our economic bubbles are used to crashing when they are doing very well and it’s never really the people’s fault it’s the governments. Although inflation begins to rise when the economy is doing great one of the things that is known to bring prices down is competition among businesses. Competition is great because one company will attempt to sell a product for a cheaper price than another company which results in lower prices the same as you see with cell phones and automobiles. Higher prices can also be caused by technological innovations when people are expecting a new product the producer can sell it for a higher price because they know that consumers will spend almost any amont of money to obtain that product. (Amadeo, 2016) Higher demand for new products will increase employment to meet those demands and inflation will rise which will benefit the economy tremendously. Whenever the price level increases, spending must also increase to be able to buy the same amount of goods and
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