The Benefits of Inflation

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    The Benefits of Inflation

    • If an economy is experiencing demand-pull inflation, then higher AD and a steady rise in the price level may encourage firms to increase output
    • Psychologically, workers will like an increase in their wages, even if it has no real impact
    • Inflation allows firms to cut their costs by not increasing wages
      • Wage rates would decrease in real terms, but this means that firms don’t have to make people unemployed, as their costs have been cut via inflation

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