If the ideal inflation rate is around 2%, won’t money eventually become worthless?

Question

If the ideal inflation rate is around 2%, won’t money eventually become worthless?

In: Economics

Answer 1

Yes, it will. 

Inflation erodes the value of money over time. We measure inflation as prices going up, but the better way to think of it, is *the value of money going down.*

This is bad for the individual, but good for the economy. 

Because money loses its value over time, it incentivises people to spend or invest their money, rather than hoard it. That increases consumption of goods and services, which increases employment etc. 

Hoarding money the bank will pay you some interest, although interest is *usually* lower than inflation.