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    Monetary Policy & Financial Inst. - Inflation or Deflation

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    How your prediction of inflation or deflation will affect your personal investment decisions.

    Amadeo, K. (2010). How does inflation impact my life? Retrieved November, 2010, from http://useconomy.about.com/od/inflationfaq/f/infl_impact.htm

    Hellerstein, R. (1997). The impact of inflation. Retrieved November, 2010, from http://www.bos.frb.org/economic/nerr/rr1997/winter/hell97_1.htm

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    Inflation is a situation where there is a sustained increase in prices of commodities. As noted by an online source, inflation hurts buying power (Amadeo, 2010). How does inflation impact my life?
    (Retrieved November, 2010, from: http://useconomy.about.com/od/inflationfaq/f/infl_impact.htm)
    As such, commodities would become more expensive while people would feel poorer because they could buy lesser amounts of commodity out of the same amount of money that they have. This is an indication of lesser purchasing power of money.

    Inflation and consumption, savings, and investments
    Because prices have gone up, households tend to utilize most (if not all) of their meagre income for consumption and least (if not zero) for their savings which should have been a source of their investments.
    With a prediction of an increase in inflation rate, there is then a tendency for households and individuals to buy now, instead of later because of the expectations that commodities will cost more in the future. ...

    Solution Summary

    Monetary policy and financial institutions for deflation are examined.