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 paper:
Identify the causes of both inflation and recession or deflation.
Identify the ways inflation and deflation can damage the economy and the society
What policies can the Federal Reserve use in trying to prevent inflation or deflation in the macro economy? 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
