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Introduction Inflationary pressures have been present in our economic system for many years and in fact in the economic systems of most of the world Mueller 1998 p246 Most people think that inflation erodes the average purchasing power of income in the economy Hall and Lieberman 2001 p496 The consumers response towards the pressures of inflation is inclined to vary depending on the fluctuation of the business cycle The major source of demand for goods and services produced are consumers Consumers response to inflation may be differ depending on if it is anticipated or unanticipated Miller 2001 p159 Thus they may step up their purchases in the face of rising prices or they may hold off and save moreMueller 1998 p 247 Inflation is the situation in which the average of all prices of goods and services in the economy is rising Miller 2001 p153 When inflationary expectations are inaccurate purchasing power is shifted between those obliged to make future payments and those waiting to be paid Hall and Lieberman 2001 p501 When time is spent on resources in order to cope with inflation an opportunity cost is paid Inflation causes things to be more difficult and forces sellers to use up resources Hall and Lieberman 2001 p502 Fiscal Policy Slows Economic Growth A deliberate discretionary change in government expenditures or taxes to achieve certain national economic goals is the realm of fiscal policy Miller 2001 p299 The federal government used fiscal policy defined by the Keynesian analysis in attempt to rid the economy of recessions and depressions The fiscal policy does have tendencies to offset the economy such as an increase in government expenditures and induced interest rates Miller 2001 p303 When an economic problem is recognized policymakers must be apprehensive with time lags These lag times are recognition time lag action time lag and effect time lag Because the various fiscal policy time lags are long a policy designed to eliminate inflation might
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