Macro Term Paper Example | Topics and Well Written Essays - 2000 words

Macro - Term Paper Example The paper concentrates on the issue of price stability and its impact to the economy Introduction Price stability refers to a situation in which the prices of goods and services in a country over a given period of time remains. It can also be best described as time when the retail index price is constant. The opposite of price stability is referred to as inflation. Inflation is an adverse macroeconomic element that is not acceptable in the economy. It is characterized by the unprecedented increase in prices of goods and services that results to making the cost of living to sour up beyond the purchasing power of various household (Pierson 20). It is the central role of the government of the day to ensure that only some small inflation, popularly referred to as mild inflation, is experienced in the society. When the level of inflation increases, it is a bad indication, which shows that the cost of living of the household has increased. When the cost of living goes up, the lower-class h ouseholds are the worst hit. However, it is good to take note that some level of inflation in the economy is acceptable as it shows that there is some form of economic growth in the country Discussion It is every government’s responsibility to attain positive macroeconomic elements in the economy, and USA government is no exception. The United States has always strived to ensure that there is low inflation, low unemployment levels, high rate of economic of economic growth, and equilibrium in balance of payment. The subsequent paragraphs concentrates on the efforts and measures put in place by the United States’ government to tackle inflation. Notably, inflation takes various forms, which include wage inflation, cost-push inflation, sectorial inflation, demand-pull, and pricing power inflation. Demand-pull is a type of inflation that is caused by excess demand of good and services in the economy, which causes the prices of goods and services to increase. On the other ha nd, cost-push is a form of inflation that is caused by increased cost of production. Such increased cost of production compels producers to pass the cost to consumers in terms of high prices (Pierson 20). On the other hand, wage inflation occurs when people are paid more salary, hence causing their disposable income to increase. With increase in disposal income, the increase in purchasing power is inevitable. The consumers tend to spend more in such circumstance leading to increase in the prices of goods and services. Essentially, there exists several level of inflation, which includes mild inflation, moderate inflation, hyperinflation, and stagflation. Mild inflation is good for an economy; in fact, this is the primary objective of the USA’s government, since it is mandated to maintain a low inflation rate of not more than 3 percent (Mills 112). Maintaining low inflation is a tasking procedure, which requires balancing of many and complex macroeconomic policies. Inflation is measured as a yearly rate of change in the retail price index. In order to achieve price stability, the rate of inflation should be maintained at zero. This is only theoretical and cannot be practical in the real economy. Some level of inflation is good for the economy as it signifies growth in the economic performance besides showing that owners of factors of production are being rewarded for their investment efforts. Mills