Wednesday, October 22, 2008

The Most Important Concepts about the Macroeconomic Policy Goal of Low Inflation

· Inflation imposes costs on society that generally result in reduced economic growth and lower present and future standards of living.

· Keeping inflation low is the primary macroeconomic policy goal in the most developed economies of the world.

· Inflation can be very hard to eliminate because expectations of future price increases contribute to continued inflation.

· Inflation is most commonly measured in the U.S. using the consumer price index (CPI). The measurement of inflation using the consumer price index (CPI) exaggerates the actual level of price increases in an economy. Consequently, even when the prices of consumer products are relatively stable, the CPI suggests there is 1-2% inflation in the economy. Thus, the macroeconomic policy goal is low inflation, rather than no inflation.

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