Why is inflation good for an economy?
In: Economics
It compels people to do something with their money — either spend it (before prices go up), or invest it (making the capital available to borrow, fueling economic growth). Either way, it keeps money flowing in the economy. If there was no inflation, people could just stash their money in unproductive ways, ie. stick it under their mattress, where it doesn’t serve any benefit to the current economy.
And a small bit of inflation is preferable to no inflation in that it could also backslide into deflation, where people then sit on money waiting for prices to fall rather than spend and bring the economy to a screeching halt.
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