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Modern economic literature suggests that managing inflation is about managing public expectations. If businesses expect there to be price increases in the futu
by saxelsen 5y ago
Modern economic literature suggests that managing inflation is about managing public expectations.
If businesses expect there to be price increases in the future (inflation), they'll raise their prices today to offset future losses from general price increases. Basically a self-fulfilling cycle.
So by creating a new economic unit with no inflation and managing to convince people that it has no inflation, the public does not raise their "real" prices, thereby fulfilling the expectation of no inflation.
This is a lot harder in practice, but that's just the general theory :)