4 ms·
No, but if there is an increase in productivity and you don’t print money there will be deflation.
by ahakki 9y ago
No, but if there is an increase in productivity and you don’t print money there will be deflation.
- ttoinou 9y agoIs deflation an awful situation ?
- sek 9y agoIt is believed to be the primary reason for the great depression. https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression https://en.wikipedia.org/wiki/Causes_of_the_Great_Depression Deflation or Hyperinflation on the other side is nothing compared to the crises we have today. They are both a path for disaster, this is the primary fear of economists. Good explanation: https://www.quora.com/Why-is-2-the-ideal-inflation-rate https://www.quora.com/Why-is-2-the-ideal-inflation-rate
- icebraining 9y ago"Our main finding is that the only episode in which we find evidence of a link between deflation and depression is the Great Depression (1929—34). We find virtually no evidence of such a link in any other period." -- Federal Reserve Bank of Minneapolis (Research Department) https://www.minneapolisfed.org/research/sr/sr331.pdf https://www.minneapolisfed.org/research/sr/sr331.pdf
- ttoinou 9y agoI hoped for a logic rationale, not an interpretation of an historic fact :(
- mcguire 9y agoLet's suppose that today, a dollar will buy you a loaf of bread. Tommorrow, though, you have a very strong expectation that a dollar will buy you two loaves of bread, and it seems likely that next week a dollar will buy you a Lamborghini Countach. What do you do? 1) Spend the least amount of money today that you can to continue living and put the rest under your mattress? 2) Anything else. Being rational, you choose one. Now magnify this by every other rational actor in the area affected by deflation. You can no longer buy bread because the grocer decided not to spend his money on new stocks. You no longer have a job because your employer would rather have your wages than your work. The widget factory expansion gets canceled because no one will loan the company money to pay for it.
- tptacek 9y agoAsk Japan.
- sp4ke 9y agoAnd how do I verify that the money printed is not more than the increase in productivity ? Effectively stealing from my productivity through price inflation ?
- Spivak 9y agoFirst, that already occurs to the tune of of about 2% annually. The Fed aims for about 1-2% inflation annually to encourage investment. But to answer your other question, in order to verify this you would need a complete-ish picture of the entire economic output of the country: how much it grew (Growth Rate), and how much currency was destroyed (Destruction Rate). With those metrics you can determine how much currency you need to print.