The current belief is a monetarist one: that more money in the economy, up to a certain degree, can lead to greater economic growth. Hence, why low amount of i

The current belief is a monetarist one: that more money in the economy, up to a certain degree, can lead to greater economic growth. Hence, why low amount of inflation is considered a good thing, and sometimes used to measure the health of our economy. This comes from a quantity theory of money -- MV = PQ, where M is the total amount of money in circulation, V is the velocity of money (or the amount of times it exchanges hand in a given year), and PQ is equal to GDP [1]. To understand this belief, we should consider 3 scenarios: deflation, low inflation, and high inflation. In a deflationary economy, where 1 dollar today is worth more than 1 dollar tomorrow, people are incentivized to save. What follows is a decrease in M and or V, which has a detrimental multiplier effect on PQ. Under these circumstances, owning a business would be very hard as interest rates would be incredibly high. Let's consider the opposite event -- high inflation. In a highly-inflation economy, where 1 dollar today is worth less than 1 dollar tomorrow, people would be incentivized to spend. This may initially sound like a good idea, with M and V increasing, and interest rates extremely low; but in a global economy, greater foreign demand for goods would drive up local prices, resulting in people unable to buy the goods and services they want. There's that other thing where wages are sticky, or not as reflexive to economic changes as prices are. The happy medium is a low-inflation economy, where people are incentivized to spend and banks willing to loan, and saving money a low-risk activity. [1] https://en.wikipedia.org/wiki/Equation_of_exchange#Quantity_theory_of_money https://en.wikipedia.org/wiki/Equation_of_exchange#Quantity_...