Why is a small amount of inflation necessary?
Saturday, December 8, 2012
9:21 AM
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Labels: comparison , deflation , deflation better , effect , inflation , Is inflation good , spiral , versus , what is better
Labels: comparison , deflation , deflation better , effect , inflation , Is inflation good , spiral , versus , what is better
A small amount of inflation is actually necessary for economic growth. At zero inflation, money sitting in an account can be more valuable than taking an economic risk.
It is even worse if there is deflation. Deflation is a viscious cycle, where money is even more valuable in the future than now. The deflationary spiral goes like this: Increased value of future money --> save more ---> less investment ---> less capital ---> fewer jobs ---> lesser salaries ---> increased value of money --> ....
It is even worse if there is deflation. Deflation is a viscious cycle, where money is even more valuable in the future than now. The deflationary spiral goes like this: Increased value of future money --> save more ---> less investment ---> less capital ---> fewer jobs ---> lesser salaries ---> increased value of money --> ....
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