I keep reading about this concept in the news. From what I understand it means stimulating the economy even when it growing. Is that right? What’s the benefit?
In: Economics
There are three main tools that the government uses to try to help an economy that’s not doing great:
– Printing lots of money
– Big government spending programs
– Low interest rates
All of these have a downside: They can cause *inflation*, which means the prices of things goes up. (Simply put, prices go up because there’s more money chasing the same amount of goods and services.)
Economists think too much inflation is bad, and negative inflation (deflation) is very bad. In the US, the ideal inflation rate is considered 2%.
“Running the economy hot” means letting inflation go above 2% for a while, to make up for the fact inflation has been below 2% for many years.
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