Project report on inflation

Increase Growth

Inflation discourages saving because the purchase power of deposits erodes over time unless there is a vigilant central bank on hand to raise interest rates. Consumers and businesses alike are encouraged to spend or invest as a result of this possibility. The increase in spending and investment leads to economic growth, at least in the short term. Inflation's negative relationship with unemployment, on the other hand, shows a proclivity to employ more people, hence boosting GDP. This effect is most noticeable when it isn't present. In 2016, central banks throughout the world were perplexed by their inability to cajole inflation or growth to healthy levels. Interest rates were cut to near-zero levels, but this did not appear to be effective.

Quantitative easing, or the buying of trillions of dollars' worth of bonds to create money, didn't help. This puzzle reminded me of Keynes' liquidity trap, in which central banks' ability to stimulate development by expanding the money supply (liquidity) is undermined by cash hoarding, which is the result of economic actors' risk aversion in the aftermath of a financial crisis. Disinflation, if not deflation, is the result of liquidity traps. Moderate inflation was considered as a desirable growth driver in this climate, and markets welcomed the rise in inflation expectations following Donald Trump's election. Markets, on the other hand, plunged in February 2018 amid fears that rising inflation would lead to a quick rise in interest rates.

8. 
   Reduces Employment, Growth
   

Those who recall the economic troubles of the 1970s are likely to find wistful discussion about inflation's benefits unusual. When growth is weak, unemployment is high, and inflation is in the double digits, the situation is known as "stagflation," as coined by a British Tory MP in 1965. Stagflation has been difficult to understand for economists. Early on, Keynesians refused to believe it could happen since it looked to contradict the Phillips curve's inverse link between unemployment and inflation. After coming to terms with the realities of the situation, they blamed the worst phase on the supply shock produced by the 1973 oil embargo: when transportation costs rose, the economy came to a halt, they reasoned. It was a case of cost-push inflation, in other words. Five straight quarters of productivity decline, followed by a healthy expansion in the fourth quarter of 1974, support this theory. However, the productivity dip in the third quarter of 1973 occurred before OPEC's Arab members turned off the taps in October of that year.

9.