1.What are the costs of inflation? Which is most important? How about deflation? Would that be a problem and for whom? The FRB worries more about deflation. Why? Do you agree? Why or why not?
Inflation will result in a loss of purchasing power, an increase of shoe-leather cost, and in increase in menu costs. The most important of these is the loss of purchasing power. This is because it makes everybody’s money less valuable. That being said deflation is usually worse, but a small predictable amount of deflation is okay. Deflation would be a huge problem because it results in a redistribution of wealth toward creditors and away from debtors. The FRB worries about deflation because it could loose them a-lot of money. I agree with the FRB in keeping deflation low.
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