Can growth take place and inflation remain unaffected ?

Résumé du document

For a long time, nobody thought that inflation would be a serious matter of concern. Apart from a few cases of hyperinflation in the 1920s, there was no big concern with regard to inflation. The period of economic boom after the Second World War witnessed high rates of inflation which had negative effects on the world economy. The economic slump in the 1970's and 1980's due to inflation shook the world economy. To maintain a zero percent inflation rate is impossible. On the other side, economies are looking at a possibility of economic growth by maintaining a minimum inflation rate. In this document we will discuss about how inflation can be countered and the issues regarding econmic growth.

Extraits

[...] II / Growth without inflation? A The Keynesian compromise 1 ) Stop-go policies ( Keynesians reckon that inflation is mainly caused by demand. So they think that if they are able to control demand, they will be able to control inflation ( that lead to what was called demand management policies - if the economy is in a slump, the State will have to give money to people and to encourage firms to invest: so they'll give pensions, benefits, subsidies ( ) and they'll print more money to finance all that ( called reflationary policy: growth will take place. [...]

[...] Can growth take place and inflation remain unaffected ? I / Dangers of growth regarding inflation A Growth and inflation mechanisms 1 ) The ideal growth ( Driving forces ( Virtuous circle 2 ) Inflation ( 3 main kinds of inflation ( Vicious circle B The inflation/growth dilemma 1 ) Leaving inflation ( A monetary phenomenon? ( Negative effects in the long-run 2 ) Tackling inflation ( Means to tackle inflation ( Negative effects II / Growth without inflation ? [...]

[...] ( called deflationary policy: growth will slow down and inflation will be avoided ( Stop-go policies have been mainly used in the 50s and 60s in the UK: alternative periods of growth + reasonable inflation and less growth + less inflation ( these policies need a time-lag before being efficient 2 ) Stagflation ( However, it eventually didn't work that well and by the beginning of the 70s, stop-go policies became inefficient ( stagflation: no growth but still inflation ( graph XL1 ( Breakdown of the Keynesian consensus: everybody realised that that solution was actually not healthy enough. B The Monetarist thought 1 ) Inflation as a monetary phenomenon ( That's the moment when governments turned to Monetarist theories ( surprisingly enough they just took the complete reverse of Keynesian theories. ( For them, first, inflation is not determined by demand but mainly by money supply: if the State would stop creating so much money to finance its expansive policies, there wouldn't be that much inflation. [...]

[...] I / Dangers of growth regarding inflation A Growth and inflation mechanisms 1 ) The ideal growth ( What happens when there's growth? ( graph 1 Exports Consumption Investment GROWTH people have more money) Consumption Savings Production Investment Wages Unemployment ( optimistic view: virtuous circle 2 ) Inflation ( First, there are different kinds of inflation: - monetary inflation: ( in money supply (like what happened in Germany in 1922-23: govt printed notes and made coins just to pay its debts hyperinflation, prices have been multiplied by 190 million within one and half year) - cost-push inflation: either ( wages (then ( prices to keep up the profit) or ( prices of imports (cf. [...]

[...] ( But, the post-war economic boom went with very high rates of inflation that had really negative effects on the economy, and after the slump of the 70s and the 80s, inflation has become the centre of all preoccupations. ( It's widely known that an inflation 0 is literally impossible, but still, is it actually conceivable to obtain reasonable growth with fairly low inflation? ( First, we'll talk about how inflation happens and what are the issues regarding growth; and then we'll try to present the few thoughts that dealt with that problem. [...]