ohsofluffy
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Is inflation inevitable? Will there always be inflation when there is economic growth? Or is there only inflation when aggregate supply cannot keep up with the growth in aggregate demand?
Economic growth and inflation (1 Viewer)
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gnrlies
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The simple answer is that it depends on what type of inflation you are talking about.
One might argue that inflation is inevitable because as our incomes rise we demand better quality and therefore prices rise. But this is not really the inflation that we are concerned about. Inflation that is a result of peoples expectations, i.e. where prices rise in anticipation of higher prices (which is self fulfilling), is most concerning form of inflation for policymakers. Inflation that results from demand pressures, again, not too worried about this because it is the market adjusting as one would expect. Economic growth and inflation do not go hand in hand, but commonly go together.
One might argue that inflation is inevitable because as our incomes rise we demand better quality and therefore prices rise. But this is not really the inflation that we are concerned about. Inflation that is a result of peoples expectations, i.e. where prices rise in anticipation of higher prices (which is self fulfilling), is most concerning form of inflation for policymakers. Inflation that results from demand pressures, again, not too worried about this because it is the market adjusting as one would expect. Economic growth and inflation do not go hand in hand, but commonly go together.
gnrlies
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Haha yeah, giving my bit back to the community after a long hiatus!