ELi5: Why is inflation so important for the economy to go?

Question

I meant Grow*

In: Economics

Answer 1

Inflation encourages spending, because the longer you hold on to your money, the less you can buy with it. Spending grows the economy by putting more money into circulation. You buying that tv allows the store to pay their workers and suppliers, the workers take that money and spend it on things they need, the suppliers pay their workers, etc.

Deflation encourages saving, because the longer you hold onto your money, the more you can buy with it later. However, if no one is spending money, then money isn’t circulating through the economy, meaning businesses aren’t making money and can’t pay their workers, who then can’t pay for the things they need, etc.