Question

This question was assigned by Franco Modigliani in 1961: “Inflation erodes the purchasing power of the dollar, robs the average man, and lowers the national standard of living. These results are pernicious and disastrous. Inflation must be avoided.” Do you agree with the statement above as it pertains to the US economy today? Why or why not? Should the Federal Reserve’s target inflation rate4 be less than, greater than or equal to zero? Why?

Answer 1

Answer - Yes , As a result of the inflation , the purchasing power of the money declines. The rise in the prices of goods and services lead to more expenses out of pocket and the lower class people suffer the most. The reduction in the value of money hurts the economy and greater expenses than before lead to lower standard of living due to lesser saving.

The inflation rate should be less than 4 %. It should be around 2% in order to see the normal growth rate. If it reduced to zero , the economy will become very fragile and inflationary pressure will began to affect the economy. Inflation rate of 4 % is likely to be higher than ideal rate.