Issue Summary

Inflation in the United States and methods of reducing its effect is the research topic that I could pursue for my major as well as my favorite subject, economics. Inflation happens when an economy increases as a result of increased spending without a corresponding growth in the production of goods and services, as is the case in the United States. When this occurs, prices increase, and the value of the currency inside the economy decreases relative to its previous value. In essence, the cash will not be able to purchase as much as it did before. When a currency's value decreases, the exchange rate of that currency declines when compared to other currencies. This, however, is contingent on whether or not other nations are inflating at a slower rate than yours. If they are inflating at a greater rate than one's nation, the currency may strengthen, which is a fundamental argument in favor of buying power parity (Taylor, 2019). There are a variety of ways for controlling inflation; some are effective, while others may have negative consequences. For example, attempting to limit inflation by wage and price regulations may result in a recession and the loss of employment. Wage and price restrictions may be used by governments to combat inflation; however, this might result in a recession and the loss of jobs (Castillo-Martinez, 2019). Governments may also use contractionary monetary policy to combat inflation by limiting the amount of money in circulation within an economy via lower bond prices and higher interest rates, among other measures. Governments utilize reserve requirements, which are the amounts of money that banks are legally obliged to have on hand in order to cover withdrawals, to control inflation (Bohl, 2018). Reserve requirements are another instrument that governments use to manage inflation.

References Bohl, M. T., & Siklos, P. L. (2018). The anatomy of inflation: An economic history perspective. Prepared for the Handbook of the History of Money and Currency (Vienna: Springer), edited by S. Battilosi, Y. Cassis, and K. Yago, Forthcoming, CAMA Working Paper, (8). Castillo-Martinez, L., & Reis, R. (2019). How do central banks control inflation? A guide for the perplexed. LSE manuscript. Taylor, J. B. (2019). Inflation targeting in high inflation emerging economies: Lessons about rules and instruments. Journal of Applied Economics, 22(1), 103-116.