Question

Perhaps tongue-in-cheek, some economists occasionally distinguish between “good” inflation and “bad” inflation. Based upon your knowledge of the text, speculate as to why these economists might see some inflation as superior to others.

Answer 1

When inflation is too high of course, it is not good for the economy or individuals. Inflation will always reduce the value of money, unless interest rates are higher than inflation. And the higher inflation gets, the less chance there is that savers will see any real return on their money.The Federal Reserve has not established a formal inflation target, but policymakers generally believe that an acceptable inflation rate is around 2 percent or a bit below.When prices for energy, food, commodities, and other goods and services rise, the entire economy is affected. Rising prices, known as inflation, impact the cost of living, the cost of doing business, borrowing money, mortgages, corporate, and government bond yields, and every other facet of the economy.Inflation leads to mal-investments. When prices rise, the value of certain investments increases faster than others. For example, prices of existing houses, land, gold, silver, other precious metals, and antiques increase with higher rates of inflation.

Inflation means the value of money will fall and purchase relatively fewer goods than previously. In summary: Inflation will hurt those who keep cash savings and workers with fixed wages. Inflation will benefit those with large debts who, with rising prices, find it easier to pay back their debts.Inflation targeting spurs demand by setting people's expectations about inflation. The nation's central bank changes interest rates to keep inflation at around 2%. The Fed will lower interest rates to boost lending if inflation does not reach its target.It would seem intuitively obvious that low inflation is good for consumers, because costs are not rising faster than their paychecks. The problem with high inflation is that even with “cost of living” increases there is a time lag between when the cost of goods increases and when you get your raise.Higher inflation will raise the cost of living. The impact on workers depends on what happens to nominal wages. For example, if inflation is caused by rising demand and falling unemployment, firms are likely to raise wages to keep attracting workers. In this case, workers real wages will continue to rise.(CPI) A rise in the inflation rate – means prices are rising at a faster rate. In the short-run, it is more likely the Central bank will increase interest rates to moderate the inflation rate.A higher inflation rate could cause greater uncertainty amongst business leading to lower investment.Inflation means the value of money will fall and purchase relatively fewer goods than previously. In summary: Inflation will hurt those who keep cash savings and workers with fixed wages. Inflation will benefit those with large debts who, with rising prices, find it easier to pay back their debts.