Inflation in the US after the Second World War Term Paper

Inflation in the US after the Second World War - Term Paper Example A low rate of inflation is particularly significant because the economy of the US was at least fully employed as per the estimates for the last three years of the last economic expansion period. However, little tendency of acceleration has been noticed in the inflation rate. It is difficult to have such a policy task that keeps the economy moving along the full path of employment with no burst of inflation happening as a result. Since the costs of labor are almost two-thirds of the total costs of production, the rate of rise is considered to be an indication of inflation in future at the retail level. The rates rose in the latter stage of the last economic expansion while they were moderate in the contraction, recovery, and expansion subsequently. The profile of inflation in the US While Europe experienced catastrophic inflation before the Second World War, the US has mainly seen three periods of inflation that generated huge economic concern since 1913; the first of these periods wa s from 1915 to1920 when prices almost doubled, the second period ranged from 1945 to 1947 during which, 34 per cent increase was noticed, and the third period ranged from 1972 to 1982 during which, a total of 131 per cent increase was noticed (Economy In Perspective, 2010). ... Although there has been no significant inflation in the US for the past few years, yet it does not imply that inflation cannot increase in the future. Eventual increase in the demand for loans by businesses and households is addressed by the commercial banks. While the consequential increased spending growth by businesses and households is first welcomed, it might lead to unwanted inflation in the long run (Feldstein, 2013). Causes of inflation Practically, the US has never experienced a period in its entire history when a change in the level of price was not accompanied with a simultaneous change in the money supply. This forms the basis of the view widely held according to which, inflation is a monetary phenomenon everywhere and always that happens as a result of rise in the monetary quantity relative to the output. In spite of the general consensus held by economists over this view, it is consistent with two very different views over the cause of inflation. According to the first view, rapid growth of money causes inflation and is itself caused from Federal Reserve’s mistaken policies. Inflation is controlled by the Federal Reserve and the control is determined by the willingness of the Federal Reserve to constrain the money supply growth. The alternative view is based on the belief that prices experience a major upward pressure because of the activities that cause a decline in the real output. Organized labor’s attempt to acquire increase in the real wages is a favorite candidate. Other activities include the OPEC’s monopolistic pricing behavior, changes in the international trade terms because of decline in dollar’s foreign exchange rate, and major crop failures. Decline in output caused by such activities generally