Can Low Inflation Conflict With Other Government Aims?
In mainstream economics, essentially the term “inflation” is used to describe a rather general rise in prices which is measured against a certain standard level of purchasing power. However, earlier the term was employed to mean an increase seen in the money supply. Nowadays, however this would be called expansionary monetary policy or simply monetary inflation. Low inflation has its share of conflict. For instance, keeping inflation well within its target might call for considerable tightening of monetary policy. This in turn could result in a recession. Remember that a small dose of inflation is frequently believed to exert a positive impact on the economy. For instance there is difficulty in renegotiating certain prices, predominantly wages, in the downwards direction. Thus with generally rising prices, relative prices are seen to adjust more easily. Japan problems with low growth along with rising unemployment, which occurred in the 1990s illustrates how low inflation can cause eco
