Monday, October 6, 2008

The Importance of Low Inflation

The Importance of Low Inflation

Inflation is bad because it imposes costs on society that could be avoided in the absence of inflation. These costs generally result in reduced economic growth and lower present and future standards of living. These costs can be minimized if the economy maintains a low inflation rate.

To understand the importance of low inflation, it helps to consider three types of changes in the price level: (1) expected, predictable, uniform price changes; (2) expected and predictable price changes that are not uniform; and (3) price changes that are unexpected and unpredicted.

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