Inflationary Expectations: Difference between revisions
No edit summary |
No edit summary |
||
| Line 1: | Line 1: | ||
It is hard to live in today's society and not be aware of inflation. Every year it makes the money we have stashed away in our mattresses worth less than it was last yaer. The inflation rate is therefore an important indicator that influences our general expectation for the future. Classically, inflation and unemployment are the two bugbears of macroeconomic policy. High inflation can seriously hurt an economy. At extreme levels, very high inflation is known as [[hyperinflation]]. This is bad for firms and consumers, but it's even worse for polititians. | It is hard to live in today's society and not be aware of inflation. Every year it makes the money we have stashed away in our mattresses worth less than it was last yaer. The inflation rate is therefore an important indicator that influences our general expectation for the future. Classically, inflation and unemployment are the two bugbears of macroeconomic policy. High inflation can seriously hurt an economy. At extreme levels, very high inflation is known as [[hyperinflation]]. This is bad for firms and consumers, but it's even worse for polititians. | ||
So if everybody wants low inflation, why does it exist? One cause of inflation is inflationary expectations. We all have certain expectations for what the next year will bring. These expectations are usually based on the recent past. Therefore, if inflation has been very high the last couple of years, it may take a while for people to begin to expect lower inflation. | |||
"So what?" you say. The problem is that through these inflationary expectations, people can actually '''cause''' inflation, whether other economic conditions predict it or not. | |||
==Inflation== | ==Inflation== | ||
Revision as of 02:01, 3 May 2006
It is hard to live in today's society and not be aware of inflation. Every year it makes the money we have stashed away in our mattresses worth less than it was last yaer. The inflation rate is therefore an important indicator that influences our general expectation for the future. Classically, inflation and unemployment are the two bugbears of macroeconomic policy. High inflation can seriously hurt an economy. At extreme levels, very high inflation is known as hyperinflation. This is bad for firms and consumers, but it's even worse for polititians.
So if everybody wants low inflation, why does it exist? One cause of inflation is inflationary expectations. We all have certain expectations for what the next year will bring. These expectations are usually based on the recent past. Therefore, if inflation has been very high the last couple of years, it may take a while for people to begin to expect lower inflation.
"So what?" you say. The problem is that through these inflationary expectations, people can actually cause inflation, whether other economic conditions predict it or not.
Inflation
History of Inflation
Inflationary Uncertainty
Policy Tools
External Links
[Credibility, What's the Big Deal?]
