why does low unemployment cause inflation?

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why does low unemployment cause inflation?

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Anonymous 0 Comments

When the job market is good, people are willing to take out loans for stuff like houses and cars. Or a loan to try to start their own business. Or whatever. The point is they take out a loan. Loans have interest. Interest causes inflation.

To put it real simply, Let’s say there’s only $1000 in existence. You take out a loan for $100. You have a 10% APR. One year later you pay back $110. Where did that $10 come from? You got it from working or something sure, but it had to originate somewhere. Now there’s $1010 floating around. Well, that $10 came from the government, either through wages to government employees who then paid for something. Or through government contracts to other businesses.

Interest creates inflation. So when lending is high (and it was historically high the last 5 years) then inflation will be high. We just wont notice for a little while.

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