Inflation Case

Inflation

Inflation can be described as when an economic system experiences prices increases that are widespread. (Griffin, Ebert, Starke, Dracopoulos, & Lang, 2014) This occurs when the amount of disposable income consumers has to spend on goods and services outweigh the amount of goods and services available for purchase by the consumer.

Inflation can be looked at as a good thing because it is a sign the economy is growing and people are purchasing goods and services. As long as there is a balance of growth and purchasing of goods and services the price increases should not deter businesses from continuing to invest in new innovations.

Inflation can have a negative effect on the economy as prices rise as a result of more people purchasing products and as the demand increases, so does the price for the goods and services being purchased. If inflation increases are too high they may deter the growth of the economy as consumers and businesses find ways to cut costs. This may result in increased unemployment which results in consumers not having as much disposable income to purchase the products and services.

I believe the government's attempt to control inflation is well advised because they can use taxes as means of controlling inflation in the economy by increasing taxes or by decreasing taxes as a way to stimulate the economy. Tax breaks and incentives to businesses to innovate and grow is an example of how the government and business work together to stimulate growth in the economy.