Inflation is the "shrinkage of the purchasing power of the dollar (Freidman 9)." Inflation can be noticed when the prices of basic commodities increases such as milk, gas and bread. It is a rise in all prices simultaneously. Inflation is caused when the demand for something exceeds the supply. This causes the price of that particular item to go up which in turn causes wages to go up and operating costs also increase (inflation). When prices rise on a few items, it grows until prices have risen all across the board. History has shown us that inflation compounds itself.

Americans fear inflation. People like to remember when candy bars were a nickel and a gallon of

Resourceful investors find many ways to combat inflation. They invest in stocks. Some investors open accounts in other countries, most notably Switzerland. During the seventies people who invested in real estate. Showed nice returns in their investments. Another smart investment was gold; "many people used gold as a hedge to protect themselves from inflation (Browne 224). The point is, no matter how bad inflation gets we as a society are not helpless. When everyone panics that is when we have the extreme inflation such as in the seventies.

Business profits are initially increased by inflation because a higher price is being paid for the same goods. Wages don't initially increase as prices do, which causes a period of economic distortion. If the cost of living has significantly increased and it takes a while for wages to do the same this can cause a lot of hard ships. As soon as people notice an increase in prices they begin to buy things that normally they would have waited to buy. They fear that if they don't buy it now, they may not be able to afford it in the future. Despite the temporary gains, inflation in that, increased business costs discourages consumer spending, stock values fall, people become leery of investing, export prices rise which hurts foreign sales (Inflation). It is this uncertainty that causes businesses to be fearful off expansion. A company might not want to build a new factory or remodel an old one if they are unsure about where the economy is headed. People who were employed by the government were generally safe from layoffs because no matter how bad business is, there are still criminal to catch and children to be taught (Case 106).

People fear inflation because as soon as they think they have a hold on it rises again. It is frustrating to people because they never seem to figure out how to maximize their spending power. For example, it someone where to invest one thousand dollars at an interest rate of six percent, when the inflation rate is four percent, in one years time the investment would have a return of sixty dollars. Forty dollars would be to inflation. A twenty percent tax rate would take sixteen dollars and eighty cents, leaving the investor with only an increase of three dollars and twenty cents to the purchasing power of the original investment (Effects of Inflation). Despite every thing bad that comes with inflation it does do some good.

The prices of homes rose dramatically during the seventies. Regardless of inflation, the prices of houses would have gone up because the baby-boomer generation was purchasing their first home. The sudden demand for houses caused investors to start buying real estate and the families who only made a middle income stretched to buy a home because they knew it would be a sma

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Approximate Word count = 1880
Approximate Pages = 8 (250 words per page double spaced)