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Inflation has many causes and psychology is one of them. If you think prices are going to keep rising, you will be more likely to spend your money to "lock in"
by Sparkle-san 4y ago
Inflation has many causes and psychology is one of them. If you think prices are going to keep rising, you will be more likely to spend your money to "lock in" the price right now. If enough people do this, it adds demand to the system which keeps prices high and prolongs inflation. If too much money in the economy alone caused inflation it would been apparent between 2008-2020.
- WalterBright 4y agoWhy is there no deflation from mass psychology? BTW, you cannot imagine yourself into having more money.
- robocat 4y ago> Why is there no deflation from mass psychology? There is: that is the ECON101 feedback model of deflation causing money under the mattress reducing money supply causing deflation. That doesn’t occur because modern money systems don’t have a fixed supply of printed money; also governments actively prevent deflation so it isn’t seen. “Opposite effects occur when the supply of money falls or when its rate of growth declines. Economic activity declines and either disinflation (reduced inflation) or deflation (falling prices) results”. Rate of growth can decline due to consumer sentiment (psychology). > BTW, you cannot imagine yourself into having more money. Strawman. Consumer sentiment (psychology) can become more positive, people borrow more (increase mortgages or buy a “better” house) and spend more (increasing the money supply).