Principles of Economics- Mankiw (5th) 772

Principles of Economics- Mankiw (5th) 772 - 798 PA R T T H...

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798 PART THIRTEEN FINAL THOUGHTS ± Confusion and inconvenience resulting from a changing unit of account ± Arbitrary redistributions of wealth associated with dollar-denominated debts Some economists argue that these costs are small, at least for moderate rates of in- flation, such as the 3 percent inflation experienced in the United States during the 1990s. But other economists claim these costs can be substantial, even for moder- ate inflation. Moreover, there is no doubt that the public dislikes inflation. When inflation heats up, opinion polls identify inflation as one of the nation’s leading problems. Of course, the benefits of zero inflation have to be weighed against the costs of achieving it. Reducing inflation usually requires a period of high unemployment and low output, as illustrated by the short-run Phillips curve. But this disinfla- tionary recession is only temporary. Once people come to understand that policy- makers are aiming for zero inflation, expectations of inflation will fall, and the
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