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You can kill inflation with demand side strategies, even if the root cause of the recent changes in inflation are supply side. Imagine an ad infinitum example.
by anm89 4y ago
You can kill inflation with demand side strategies, even if the root cause of the recent changes in inflation are supply side.
Imagine an ad infinitum example. Let's say the price of gas goes to $1M a gallon. The fed then somehow removes every dollar from the economy. The price of gas is still going to be approaching zero when denominated in dollars after demand is forced to zero(in reality the price of gas would just change to be denominated in physical violence in this mad max scenario but that's an aside)
- kmonsen 4y agoOnly if you are the only country in the world (or bigger than the rest combined). That being said all of the central banks are doing the same so maybe it works that way. If someone want they can get a free lunch, no need to increase the rate but everyone else lowers inflation for them.
- anm89 4y agoYou are refuting the details of my self admittedly absurd example. The point is, you can kill supply fueled inflation with demand side polices. Any country can do this within the scope of transactions denominated in the currency they control
- kmonsen 4y agoSure, but the effectiveness will be less if the "problem" is global. If the US has 50% of the worlds demand for some good, and only the US fights inflation, then the effectiveness of the measures taken will only be 50%. So for the US maybe that is still possible, but if you are Costa Rica that becomes meaningless.