We have now seen that monetary authorities are charged with maintaining both price level stability and overall macroeconomic stability, particularly employment. After all you have learned about inflation, take a moment, and consider what the effects, or costs, of inflation, are. In other words, who does inflation hurt the most? When are the effects of inflation worst?

Write an essay examining how inflation affects us, what determines the extent to which inflation harms us, and which households are affected the most by inflation. Next, consider the effects when there isdeflation. Why are policymakers aiming to avoid both high inflationanddeflation? What can deflation indicate for economic stability?