Inflation: Definition & Effects on Rates

  • Thread starter Thread starter Kyoma
  • Start date Start date
  • Tags Tags
    Inflation
Click For Summary

Discussion Overview

The discussion revolves around the definition of inflation and its effects on prices, particularly in relation to demand for goods and services. Participants explore theoretical concepts, real-world analogies, and the implications of monetary policy, specifically quantitative easing (QE-2), on inflation and oil prices.

Discussion Character

  • Exploratory
  • Technical explanation
  • Conceptual clarification
  • Debate/contested

Main Points Raised

  • Some participants define inflation as a positive change in the price of goods measured in currency and suggest that an increase in demand typically leads to higher prices.
  • Others provide a Monopoly analogy to illustrate how an increase in money supply can lead to inflation, arguing that it diminishes the value of existing money.
  • A participant questions whether QE-2 could lead to higher oil prices, linking it to inflationary effects.
  • Some argue that inflation and demand both contribute to rising oil prices, while also noting the unpredictability of oil prices due to market dynamics.
  • Concerns are raised about the complexity of economic discussions and the perception that they are inaccessible to the average person.
  • One participant suggests that the relationship between money supply and inflation is not straightforward, introducing the concept of currency price deflation in contrast to price inflation.
  • References to historical banking practices and critiques of the Federal Reserve are presented, with some participants advocating for further reading on the subject.

Areas of Agreement / Disagreement

Participants express differing views on the relationship between money supply, inflation, and oil prices. There is no consensus on the implications of QE-2 or the definitions and effects of inflation, leading to an unresolved discussion.

Contextual Notes

Some claims about the effects of QE-2 and the relationship between inflation and oil prices depend on specific economic assumptions and definitions that are not universally agreed upon. The discussion includes varying interpretations of inflation and its causes, highlighting the complexity of the topic.

  • #61
Wow Woowee looks like massive inflation if these price increases work their way into consumer products.
 
Physics news on Phys.org
  • #62
IMO - the only thing holding inflation back is the interest rate. Now Moody's and S&P are warning the US the AAA rating could be lowered.
 
  • #63
hamster143 said:
The projected scale of QE2 is consistently quoted as at least $1 trilion (6.7% of GDP) and potentially $2 trillion (13.3% of GDP). I'm not sure where your 3.5% of GDP number comes from.

Projected by whom?

The Federal Reserve Board has authorized the bank to purchase up to $600B in Treasurys. This is commonly referred to as QE2 in the media. The actual amount purchased and pledged to be purchased is much less, at approximately $400B.

As for growth impacts, let's do some rudimentary static analysis. Assume a constant multiplier of approximately 2, and that the whole $600B is spent. This means $1.2T in wealth is injected into the economy, and must be absorbed either by price increases or new growth. If the full amount is absorbed by growth, then the economy will expand by $1.2T over 12 months due to the Board's actions, an impressive stimulus by any measure. Again, this is simplistic and rudimentary, but illustrates the point. Obviously, some of that money will be lost in both price increases and buybacks by the Fed as securities come to term. Further, the currency is injected over time, and not all at once.

But this is sufficient to demonstrate the Board's intent.
 
  • #64
talk2glenn said:
As for growth impacts, let's do some rudimentary static analysis. Assume a constant multiplier of approximately 2, and that the whole $600B is spent. This means $1.2T in wealth is injected into the economy, and must be absorbed either by price increases or new growth.

Or consumed by deficit consumption. The 600 billion of federal debt paper that no one would buy that is being "printed" by the federal reserve private bank. In which case there will be zero growth. But at least there will not be 1.2 trillion contraction.
 

Similar threads

"The Federal Reserve is raising interest rates to reduce inflation"
  • · Replies 3 ·
Replies
3
Views
695
How is Inflation Affecting Your Daily Expenses?
  • · Replies 120 ·
5
Replies
120
Views
8K
Is There a Safe Way to Beat Inflation?
  • · Replies 54 ·
2
Replies
54
Views
6K
Undergrad Inflation Models that don't produce Multiverse?
  • · Replies 5 ·
Replies
5
Views
2K
Inflation rate and discount rate?
  • · Replies 1 ·
Replies
1
Views
2K
Undergrad Developing Inflation Theory w/o Dark Energy: Alan Guth 1980
  • · Replies 1 ·
Replies
1
Views
2K
High School Does dark energy or cosmic inflation explain flatness?
  • · Replies 37 ·
2
Replies
37
Views
6K
High School Inflation after Atacama Cosmology Telescope Results
  • · Replies 3 ·
Replies
3
Views
968
High School Explaining Cosmic Inflation using analogies
  • · Replies 3 ·
Replies
3
Views
2K
Undergrad What is the significance of slow-roll inflation in cosmology?
  • · Replies 1 ·
Replies
1
Views
2K