Rising prices for goods, which can be described as inflation, has great impact on the economy. Inflation has its pros and cons in respect to economic growth. If the rate of inflation is at a moderate level this may help the economy. It may be great for those that purchase homes or stocks before prices rise. However if the rate of inflation rises increasingly the economy can decline. If a person’s income does not increase or if it increases slower then inflation this makes it harder for them to purchase goods. Many individuals rush to purchase goods and services if they expect inflation, this action can actually make the inflation rate higher then anticipated and is referred to as spiraling inflation. Inflation below 6% wouldn’t affect the economy negatively but anything above 10% could be of great impact. Since the U.S continues to borrow money they may need to purposely cause inflation to pay back their debts. “A look at public opinion polls reveals that inflation at times can be viewed as the most important national problem “(Shiller 1996).
When many individuals lose their jobs throughout the course of time the nation is affected, people can no longer purchase the same quantity of products and production slows down because of the lack of workers. If there is a spike in unemployment the economy of the nation is seen as declining. However if the employment rate is steadily increasing there is worry of inflation. Unemployment affects U.S economy; as the number of unemployed individuals increases more people apply for government aid such as Medicaid or unemployment benefits etc. Which can cost the nation millions also the government wont be able to collect the same in taxes from the citizens because of this issue. If this continues for a long time the government may need to borrow money, which can make the situation worse in the long run. It is apparent that maintaining equilibrium between inflation and unemployment is needed.