Research Paper: Inflation: Causes and Effects

Sample Research Paper

One of the causes of inflation is an excess of spending in the economy as a whole.  It is when people, groups, business, government, and foreigners altogether demand or try to spend more than the economy could produce at full employment.  Prices will be bid up, in this case, and until the excess demand for goods and services is reduced or the capacity of the economy to produce is expanded, price levels would continue to rise (Wilson, 1982).  Once again, monetary inflation could be a cause of excess demand in the economy as a whole.  When there is an increase in the amount of currency in circulation, people, in general, would try to purchase more goods and services than before, and unless this excess demand is met adequately by excess supply, inflation would result.

     Economic debates the causes of inflation, and this is because poor economic conditions are normally accompanied by anomalous inflation behavior.  During the Great Depression of the 1930s, the United States saw its worst economic performance of the twentieth century.  There was deflation at that time.  But then, in the 1970s the economy was doing poorly once again.  Yet, this period was marked by price inflation.  Most economists conclude that inflation cannot be unusually high or low without the impetus provided by high or low money growth.  It leads them to identify the causes of changes in monetary supply at this point (Christiano and Fitzgerald, 2003).  Do they seek the answer to the question: What makes the Federal Reserve increase or decrease money supply at any point in time?

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