Monetary Easing and Inflation



Monetary Easing and Inflation

Introduction

The stress of the global financial system was spited to the global economy all around the globe. The major causes of the crises were the monetary easing and the inflation. The monetary easing and the inflation in the U.S economy were increased because of the debt problem, mortgage market, high interest rate etc. These causes in turn increase the complexity in the financial market. Inflation is defined as the increase of the price level of goods and services, which in turn increase the crises in the economy of the country. Increase in the prices of the goods and services decrease the purchasing power per unit of the dollar. Inflation is measure through the change in the rate of the prices of goods and services. Inflation put the negative impact on the economy of the U.S country. The negative effect of the inflation are increasing rate of the opportunity cost, decrease level of investment and saving, shortage of goods as compare to the increasing demand of the customers.

Monetary easing includes the monetary policy of the U.S which includes the the action taken by the state bank of the U.S country in order to decrease the interest rate and the decrease in the supply of money. An economist took these actions in order to reduce the burden of the U.S economy. Monetary policy of the state bank includes the purchase and the investment in the private sector. The monetary policy of the U.S is made by the federal reserve who implement it because of the influence of the short-term interest rate. The present study is about the inflation, monetary easing, and impact of both activities on the global economy.

Discussion

Monetary Easing and Inflation in the Global Economy

(Gali, 2010, 93-102) discussed that the inflation put the negative impact on the globalization of the economy. According to the study, a small number of firms in the economy set the prices of the goods while each of the good had the own currency terms. As a result, the prices of the goods increased the inflation in the country, which in turn increase the openness in the economy. There are certain variables, which increased the inflation in the country. These variables included increased in the domestic price level and increased in the exchange rate. Increase in the price level domestically increased the prices of the good worldwide, which changes the term ...