Why does inflation increase in a fast-growing economy?

Discussion in 'Economics' started by nooty, Oct 22, 2010.

  1. nooty


    Why does inflation increase in a fast-growing economy?
  2. Because, in recent history, such growth has also been accompanied by increased expansion of the money supply, usually by increasing availability of credit.
  3. Because the velocity of money increases. Too much money chasing too few goods. Supply and demand.

    Look at some recent real life examples of 'inflation'. Stock market bubble, housing bubble. A lot of money went into a relatively finite amount of 'assets'.

    A good follow up question is why don't we have inflation currently. Because velocity of money is dropping, causing deflation.
  4. A healthy economy has both moderate growth and moderate inflation. Lots of readable papers on this matter available with search engine.

    The challenge is to find the "levers" to adjust the economy and to find the sweet spot in the levels. The FED has some control and during "normal" times can exercise these levers to good effect. However, when Congress and the President have so damaged our economy and our outlook for the future, the FED already has the levers to the Firewall. The only levers they have left are very dangerous. They may benefit us in the short term, but have serious long term risks.
  5. S2007S


    Ahh inflation is coming, bubble ben bernanke is inflating his way out of this credit crisis, inflation is going to run rampant while the dollar quickly becomes monopoly money.

    This is how real greenbacks look:


    Bubble ben bernanke is doing an excellent job of turning those precious greenbacks into worthless monopoly dollars just like they look here:

  6. Actually THIS is how a real greenback looks. Its money that was printed by the US government and not a central bank. Both your pictures are monopoly money. This picture is what an interest free dollar looks like (federal reserve notes are not interest free dollars as they are traded for treasury bonds that taxpayers pay interest on.)