A major concern of the Federal Reserve is to maintain stable prices. It attempts to do so through
influencing the money supply and interest rates. You are to examine the impact and consequences
of both inflation and deflation. Address the following areas in your presentation: Identify the causes
of both inflation and recession or deflation.
Identify the ways inflation and deflation can damage the economy and society
What policies can the Federal Reserve use in trying to prevent inflation or deflation in the
macroeconomy?
What are some of the short term uncertainties and longer run risks in using these policies? If you
must accept a trade-off between higher prices or fewer jobs: which is the better choice and why?
Sample Solution
