Re: When should the Fed act against inflation?

That _means_ that "inflation" to actually be "inflation" is not simply a
rise in prices. It says that "inflation" IS a monetary event and that
real "inflation" is actually a decrease in the value of money. This is a
point with which you may certainly disagree.

Even if you do not agree with inflation being "a rise in prices" you
have to understand the damage that this has on the economy, in the way
it makes both consumers and firms uncertain about the future. This
uncertainty will usually lead to lower investment and lower consumption
in the economy which will result in lower aggregate demand and
therefore lower output.

Slowing the growth rate of the real economy is not normally a
"good" thing to do unless you are very selective about it.

Some people think that it is better to have low inflation and slower
growth, because inflation causes large amounts of uncertainty in the
economy and in the long run this is likely to lead to slower growth
rates.

If we dramatically increase the tax on gasoline I can predict very well
what the reactions will be. Same with an across the board increase in
import duties. Same with increasing the tax on a lot of
"bads".

The problem with putting taxes on googs such as gasoline is that they
are very price inelastic, this means that even for a very large change
in price there is only likely likely to be a small change in the
quantity demanded.

2. It strangles the really small bossiness's and the small farmers that
are the real soul of a good middle class economy.

This may be the case but sometimes this may be the only solution for
high rates of inflation and will probable benefit the economy in the
long run.

.

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