Inflation and Its Effects on the Economy

Annie Liu, Verrazzano Class of 2023, completed majors in Accounting and Business Finance

For my capstone project I researched inflation, its impact on the economy, and how we could protect ourselves during these periods. As a finance major, inflation was a topic taught in many of my classes, and it was interesting to see how it appeared to have a link to different parts of the economy.

One of the major reasons for choosing this topic would be the current economy, as we are currently going through a phase of inflation. One of the leading factors that led to this inflation was the impact of the pandemic.

The federal government has a monetary policy to lower and control inflation levels, although it may not always be effective. The current policy is to increase the federal funds rate to tighten the movement of money within the economy, which is expected to succeed. I also learned about how the actions of the federal reserve in controlling inflation could have a domino effect on the economy. Increasing the cost of borrowing between banks will lead to more expensive loans for businesses and individuals borrowing from the bank, in addition to affecting the bond market.

Even though we as individuals may not be able to control inflation, there are ways we can protect against it. Through my research, I learned about securities like Treasury Inflation Protected Securities (TIPS), and using gold to protect the value of our money. Besides protection, I also learned of some ways that we could utilize inflation to our advantage, such as buying real estate whose value has dropped.

If I were to continue with my research, I would look into ranking the securities from best to worst that could be purchased in times of inflation. This research paper allowed me to understand the objectives that I learned in class from a real-life perspective.