Filling you in on the current state of the economy.
- Economists like to remind people that inflation and deflation are monetary phenomena and that they ultimately stem from central banks’ monetary policies. Inflation results when a nation’s central bank creates more money than its public wants to hold, and deflation occurs when a central bank creates too little. The connection between central banks’ monetary policies and inflation, however, is imprecise and often drawn out over many years. This imprecision happens for two reasons: Not all price changes stem from inflation; some instead reflect an emerging scarcity or abundance of particular goods. And the public’s demand for money, the amount it wants to hold, often is not very stable. Economists can, however, employ a simple technique that helps us see more clearly the relationship between money and price movements. Read more