Sample Economics Assignment Paper on Implications of Inflation on the US


As we all know, the United States is among the largest economies of the world due to its
economic policies and relations to other markets. Inflation concerning the country’s economy
focuses on the rise of prices on commodities, food, services, and energy. With the above
changes, it means that the economy is affected. Inflation is known to impact the cost of living.
An example includes the 2008 financial crisis, which influenced the standards of living to
increase due to inflation. The cost of citizens and foreign investors conducting business also
increases (Bianchi & Civelli, 2015). Changes are experienced in borrowing loans, corporate and
government bond yields, and mortgages. The above issues are essential to creating an in-depth
comprehension of the role played by inflation on changing the economy of a country such as the
United States.

The Relationship between Inflation and the US Economy

The implications of inflation in a country seem to be diverse. Inflation can either be
negative or positive in the economic recovery of a nation. A high level of inflation in a country
may lead to a suffering outcome of the economy. Back in the 2008 financial crisis, a country
such as Zimbabwe had a collapsed economy because of the level of inflation is high. The value
of its money was lost, and the country had increased prices of commodities and services
(Gilchrist, Schoenle, Sim, & Zakrajšek, 2017). A prospering economy occurs when a country can
control its inflation at reasonable levels.
A controlled and lowered level of inflation means that a country may have increasing
opportunities in areas such as employment. It means that the country will have more of its
consumers having more money to purchase both goods and services (Reifschneider, Wascher, &

Wilcox, 2015). The economy will benefit and prosper in all its developmental areas. However,
people should understand that the role and influence of inflation on economic recovery may not
be evaluated with complete accuracy.
The gross domestic product is affected by inflation. It means that the total value of goods
and services either grow or decline compared to the years before. As prices increase, it means
that the value of the dollar decreases. This is experienced when the purchasing power erodes
with an increase in the prices of the basic commodities. When it comes to the cost of borrowing,
low inflation assists an economy from recession and depression (Ascari, Phaneuf, & Sims,
2018). The low borrowing money cost for investments is low, in the above case. During
inflation, banks and financial institutions may not want to lend money to consumers due to low
rates of return on loans.
The situation has a decreasing impact on profit margins. The consumer price index looks
into housing, education, food, energy, and recreation. If the consumer price index goes
beyond/below the standardized threshold, it means that the economy will be affected negatively.
An increase in the value of hard assets such as real estate means a problem in the economy
(Capistrán & Ramos‐Francia, 2010). Lastly, controlled inflation is beneficial for the recovery of
a country such as the United States. If the US continues to borrow and increases its debt, it will
inflate its currency for retiring the obligations.

In conclusion, inflation has both a negative and positive impact on the development of an
economy. Controlled inflation means that the economy may stabilize, more money funded to
businesses, and an increase in employment opportunities experienced. High rates of inflation
mean that an economy has a high risk of failure.



Ascari, G., Phaneuf, L., & Sims, E. (2018). On the welfare and cyclical implications of moderate
trend inflation. Journal of Monetary Economics, 99, 56-71.
Bianchi, F., & Civelli, A. (2015). Globalization and inflation: Evidence from a time-varying
VAR. Review of Economic Dynamics, 18(2), 406-433.
Capistrán, C., & Ramos‐Francia, M. (2010). Does inflation targeting affect the dispersion of
inflation expectations? Journal of Money, Credit and Banking, 42(1), 113-134.
Gilchrist, S., Schoenle, R., Sim, J., & Zakrajšek, E. (2017). Inflation dynamics during the
financial crisis. American Economic Review, 107(3), 785-823.
Reifschneider, D., Wascher, W., & Wilcox, D. (2015). Aggregate supply in the United States:
recent developments and implications for the conduct of monetary policy. IMF Economic
Review, 63(1), 71-109.