From my personal notes

  • Inflation = Economy is growing

  • Deflation = Economy is shrinking

Inflation is not a tax on wealth. It is a tax on holding money. 


Why is small stable inflation (around 1-3%) good? 

  • Low, stable inflation is considered good because it stimulates economic growth by encouraging spending and investment, 

  • Helps borrowers repay debt, and prompts employers to raise wages to maintain purchasing power. 

  • It prevents deflation, which can be more economically damaging by discouraging spending as people wait for prices to fall. 


Why is zero inflation bad?

  • It increases the risk of deflation, which leads to slower economic growth and spending.


What happens when there’s deflation

  • It means costs of products are dropping. Thus people have more incentives to hold their money waiting for prices to drop. 

  • The cascading effect can be terrible if more people are holding on to money. And economy won’t grow.