The Inflation Rate

• The Federal Reserve is also the guardian of price stability
• Why care about price stability?
  • Belief that unstable prices disrupt the market system's ability to function well
  • Fact that voters really dislike high inflation
  • Belief that you gain nothing in the long run in terms of lower unemployment--that in fact you lose in the long run--if a central bank gets a reputation as an organization that tolerates inflation
• But in the short run higher inflation goes with lower unemployment

Comments

[Ben S]

I think this graph would be more useful if the price level were on a logarithmic scale, so that slopes at different times would be comparable.