I meant Grow*
In: Economics
Economies depend on money being useful, whether for buying things, passing hand to hand or by being invested so that businesses and people who need to borrow have access to capital. Without inflation, people might choose to delay spending (no worries, prices will be same next year!) and sit on money (no need to invest, my $1000 will still buy same next year when sitting under my mattress). Also, a couple percent of inflation is important to prevent deflation (falling prices) which make the no inflation situation even worse — more delayed spending or investing when prices are actually falling.
Inflation is the decrease in “value” of any single piece of currency. This is represented by increasing prices; since a “dollar” is worth less next year than last year, a loaf of bread (worth some relatively fixed value) will cost more dollars next year than last year.
Inflation is caused by increased money supply; more physical (or digital) money moving around in the economy. This is what makes the money worth less; since there are more dollars, each dollar is worth less.
This is helpful to make the economy grow because it encourages people to spend their money. If you have 100 dollars now and can buy 100 loaves of bread today, but the same money next year can only buy 90 loaves of bread, then you are “losing” money each year (actually, you’re losing “value”, but it’s six of one or half-dozen of the other).
To reduce this “loss”, you should spend your money now instead of next year. This can either be to buy things (eg. a book won’t lose value like money will) or to invest in things (investing in a business may make more money for you than you would lose, so you’d net-gain money). Making money/value move around is what the economy is. Investing money into new businesses, technologies, and/or education improves our capability to make things, which grows the economy, as it increases the “value” that we have access to.
It encourages you to spend/invest as if you hold cash it will decrease in buying power. If zero inflation then decreased incentive to buy/invest.
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