I might also need a quick on inflation as well. All I can think is that they’re trying to de-incentivize interest-based purchasing but I don’t understand how that’s a fix for inflation.
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A simple view is this:
1. Inflation is when purchasing power goes down.
2. Purchasing power goes down when prices go up but wages do not.
3. Prices go up when demand goes up.
4. To increase loan rates slightly is to decrease the number of new loans slightly.
5. Dropping the number of loans slightly in turn drops demand, because a small threshold of people choose to decline the more expensive loan.
In other words, just to slow down how fast new malls and homes and stuff being built. This is why economists sometimes use the term “overheating” to describe an economy that’s chugging along too fast, you can easily trigger inflation.
Deflation is the opposite of all the above. This happens when the value of your money increases next year compared to this year. “Why build a hospital this year if it will be cheaper to build it next year?”
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