Employment and inflation

Inflation Money is like everything else: the more there is of it the less value it has So if there is a lot of money in an economic system ? The value of the money falls and the prices of good rise

Inflation is Good for Debtors – because the value of their debt diminishes with the value of the currency US Debt – the value of the US deficit diminishes Bad for People on fixed incomes – they can afford to buy less People who have saved a lot of money – their savings are worth less Banks – their loans are worth less

Employment As more people have jobs, they make more money, thus pumping more money into the economic system More money (as we established) means higher inflation

So government tries to balance inflation and employment

How? Spending – creates jobs but puts money into the system Taxes – raising taxes pulls money out of the system (so long it isnt then spent) Interest rates – the government manipulates the cost of borrowing money Government securities – selling of government bonds can pull money out of the system

Why not just set prices by law? Prices are always set below the actual value of the good (Otherwise why would you want to control wages?) Leads to shortages of the good Leads to hoarding Leads to the black market (where goods are traded at their real value) Coercive