Question

The “Inflation Comes Back…” article discusses the balance between inflationary pressures and other economic tensions.What are some of the factors that were leading to rises in inflation?

the article discusses the balance between rate changes and avoiding too low a level of inflation. If the Fed’s actions cause inflation to rise when inflation is already expanding, this can cause market distortions. What are some issues that can occur when inflation is high concerning economic growth?

https://www.wsj.com/articles/inflation-comes-back-into-the-picture-for-the-fed-11568303877

Answer 1

Factors that were leading to rise in inflation are :

1. Wage Growth Rate -

wage push inflation has an inflationary spiral effect that occurs when wages are increased and business must to pay higher wages charge more for their products and services . Also, any wage increase that occurs will increase the money supply of consumers.

2. Tariffs -

Goods will see price increase directly as a result of tariff, which adds to prices of the goods.

These prices reduce demand , change the supply demand balance.

Tariffs increase the inflation by increasing consumer prices of imported goods, by increasing costs for the companies that use intermediate inputs, and by increasing costs of investment goods for business.

Issues that can occur when inflation is high concerning economic growth are :

1.Erodes purchasing power -

Inflation causes decrease in purchasing power of currency due to a rise in prices across the country.

Now the people would be able to purchase less goods with the same amount of money.

2. Raises the cost of borrowing -

The cost of borrowings increase rapidly once the prices rise up to high levels. The interest rates of borrowing are fixed much higher by the banks and people are unable to borrow money from banks for any financial help.