I meant Grow*
In: Economics
A couple of reasons;
1. As has already been mentioned it’s a tax on holding onto your money that incentivizes people to either buy things or invest their cash rather than sticking it under a mattress.
2. Getting out of a recession frequently means people taking a pay cut. People are pretty understanding about not getting a raise during bad economic times but will flip out if their employer actually tries to cut their pay. Inflation acts as a “phantom” pay cut during bad times and this tends to moderate the boom and bust cycle of the economy.
3. Deflation is much worse for the economy than inflation, and we can’t really control inflation perfectly so building a little bit of inflation in as a safety cushion makes sense. We’re a lot better off with an average of 3 percent inflation that fluctuates between 0 and 6 percent than we would be with an average of 0 percent that fluctuates between 3 percent deflation and 3 percent inflation.
Latest Answers