I know Gordon Brown sets the target inflation rate at 2% per year. And I can understand why its good to keep inflation low, but what is the good reason to keep it %26quot;not-too-low%26quot;?
Why is below-target inflation bad for the economy? Why is target inflation above 0%?
Inflation is not all bad. If inflation is too low there is a danger of stagflation - where the economy stagnates and may shrink. This happened over much of the 80s and 90s in Japan. Amongst other things under stagflation people expect prices to remain stable or fall and thus delay purchases (so they will be cheaper). This has knock on effects for employment which in turns reduces job security and makes people%26#039;s spending more cautious.
Why is below-target inflation bad for the economy? Why is target inflation above 0%?
I doubt there is a single optimum: it would depend on your priorities and probably also other economic factors. My guess is that 2% gives you enough room for measures to impact the economy before inflation falls below. So it may not be optimum - but gives a margin of safety. Report It
Why is below-target inflation bad for the economy? Why is target inflation above 0%?
If inflation is deflation, there is a recession, and the economy does not grow. You want the economy to grow slightly each year and prices to rise.
Why is below-target inflation bad for the economy? Why is target inflation above 0%?
that is the question
No comments:
Post a Comment