Inflation in the United States - Research Paper Example

The case with the nation of the United States is not in any case different. Recent report from U.S. Bureau of Labor Statistics reported in less than a month ago that the price index for all items has increased by 1.4 percent over the first twelve months (USDL, 2012). This could be an indication that inflation rates have increased in the United States. However, as the following chat indicates the increase in inflation has not increased in a rate that would affect the economy. The CFI-U chat above shows only a very slight upward shift on the consumer price index during the period suggested by the report.

This period is subsequently followed by a period of lower CFI-U as indicated by the chat. The lowering of CFI-U indicated by the chat show that inflation rate in the United States has been decreasing since July this year. Moreover, the raise in CFI-U is very slight thus indicating that the increase in inflation during that period was insignificant. The current consumer price index is lower than the one that was reported five years ago. This indicates a significant decline in the inflation rates in this country.

Inflation in a country is mainly caused by economic activities and the volatility of the economy. One reason why United States has been able to reduce inflation is that it has been able to reduce the volatility of its economy. Another reason is that it has been able to increase the economic activities undertaken on its economy. All this has been done through adapting an effective monetary and fiscal policy. Fiscal and monetary policies have been identified as the most essential tools of solving economic problems.

In solving economic problems, the two policies help to reduce the inflation rates in an economy. Moreover, they help to sustain low inflation rates in an economy despite the external factors that might try to increase the inflation rates. According to Yang & Traum (2010), the fiscal policy adapted by the United States focuses on adjusting government spending and tax rate. Increase in government spending has several effects to this country’s citizens. Among these effects is the increase in the commitment of the government in the provision of essential services.

This raises the standards of living of individuals in this country thus resulting to economic growth. Lowering tax on the other had stimulates economic activities in a nation. United States has been maintaining a low tax rates in its economy thus raising the aggregate demand and expenditure in its economy. The raised aggregate demand and expenditure stimulates the economic activities thus resulting to economic growth. The economic growth has been enabling this nation to lower its inflation rates and sustaining the low levels of inflation.

United States has been maintaining low interest rates on its economy. This is mainly aimed at reducing the supply of money. As a result, it could be categorized as a contradictory monetary policy (Dwivedi, 2010). The policy plays a very significant role in raising the price of this country’s currency. This assists in reducing the inflations rates in the economy of the United States. However, in an attempt to overcome unexpected increases in inflation, the monetary authority in this country is forced to introduce expansionary monetary policy in the economy.

Expansionary monetary policy is one that focuses on increasing the supply of