I meant Grow*
In: Economics
There’s two answers to this.
One is “why is it good”? Others have explained that: it provides an incentive to keep the economy in motion. Without it, all expenditure and all investment becomes a game of chicken, because it’s always rational to wait. Not only to buy things, but to invest in developing penicillin or computers. Even if you have an idea, the longer you wait, the cheaper it will be to develop.
The other is “when is it good?” Some of the nuttier opponents of fiat currency, be their Bitcoin bros or Q Anon gold/silver hoarders, thing that there should be a fixed amount of money in an economy. But that’s inherently deflationary (at least, with occasional blips like the black death, since the dark ages). The invention of, say, the spinning jenny allows the same number of people to make more stuff in the same time; the invention of production lines means that you can make a lot more cars than if you are bespoking them in a shed. That’s growth: the economy is bigger. The poorest man alive can shave with a razor which would make the king of France jealous, to roughly paraphrase an economist whose name I cannot remember. That’s because what was in 1750 exotic and expensive — a sharp, usable razor — is now cents.
It makes no sense to say “OK, the amount of money is fixed where it was in 1750” because there’s just more stuff, more available. So if you fixed the money supply, you would either have savage deflation or again no particular reason for anyone to develop anything, as you could only charge a fraction of what its predecessor cost.
So inflation is good, as it drives development and increase in the standard of living, and inevitable, as things develop and standards of living increase.
For the economy to grow, you need new companies to be able to start up/expand. They typically do this by borrowing money and paying interest. Without inflation, lenders are much less motivated to lend out any of their money, since they could just sit on it and stay just as rich. Without this lending, companies can’t start up or grow as easily, and the economy cannot grow as fast
From my econs class, inflation occurs when aggregate demand (total demand) increases, total demand = more people spending/buying = economy growing. On the graph as AD increases it shows the price will go up = inflation. But this is from a economic theory perspective. Other factors are important when it come to determining whether the inflation is actually beneficial to the economy. The best is a low steady inflation rate.
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