Can someone explain to me the relationship between inflation and population growth?

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For example, if our “reproduction rate is 1%” meaning our population doubles every 72 years ish, wouldn’t that essentially mean that inflation would be 1% less likely to occur each year because now there are more people that utilize this money supply both by taking and giving to the economy? And could this essentially be taken off of a discount rate that we might use when analyzing any future investments?

In: Economics

4 Answers

Anonymous 0 Comments

The relationship between inflation and population growth is complex and not always a straight line. Here’s a simplified explanation:
* More people, more demand: A larger population can lead to higher demand for goods and services, which can put upward pressure on prices (inflation).
* More workers, more production: But more people also means a potentially larger workforce. This can increase production and supply, potentially offsetting inflation.
So, a 1% population growth rate doesn’t directly translate to a 1% decrease in inflation. The impact depends on how well the economy keeps up with the growing population’s needs.
This doesn’t directly affect discount rates used for future investments. Discount rates consider factors like future interest rates and inflation expectations, but not necessarily population growth.

Anonymous 0 Comments

The relationship between inflation and population growth is complex and not always a straight line. Here’s a simplified explanation:
* More people, more demand: A larger population can lead to higher demand for goods and services, which can put upward pressure on prices (inflation).
* More workers, more production: But more people also means a potentially larger workforce. This can increase production and supply, potentially offsetting inflation.
So, a 1% population growth rate doesn’t directly translate to a 1% decrease in inflation. The impact depends on how well the economy keeps up with the growing population’s needs.
This doesn’t directly affect discount rates used for future investments. Discount rates consider factors like future interest rates and inflation expectations, but not necessarily population growth.

Anonymous 0 Comments

Population growth generally isn’t considered a factor with inflation.

More people is more demand…but also a larger workforce, so more supply.

There *may* be some niche circumstances–like a developing nation experiencing a baby boom with a huge number of babies that increases demand but they aren’t in the workforce to offset with supply–but those are limited in scope and relatively rare.

Anonymous 0 Comments

You assumption would be correct if we based our money on something that had a limited supply, for example gold. Then as more people existed there would be less currency per person and deflation would occur.

However our current system allows the government (and the banking systems it uses) to increase the total currency for use when the demand is there. So we avoid this problem.