If the ideal inflation rate is around 2%, won’t money eventually become worthless?
In: Economics
Inflation at around 2% means that prices increase by 2% per year on average. Over time, this does make money worth a bit less each year, but not to the point where it becomes worthless.
Here’s a simple way to think about it:
– **Year 1:** A candy bar costs $1.
– **Year 2:** With 2% inflation, the same candy bar costs $1.02.
– **Year 3:** The candy bar costs $1.04, and so on.
The value of money decreases slowly, not rapidly. The idea behind a 2% inflation rate is to keep the economy growing steadily, encouraging people to spend and invest rather than hoard money, which helps businesses thrive and keeps employment stable.
Money wouldn’t become worthless because the inflation rate is managed to be low and steady. It only becomes a problem if inflation gets out of control and prices start increasing very quickly, which can lead to money losing value rapidly. But with a stable, low inflation rate like 2%, money retains most of its value over time.
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