Question

Why do some economists claim that we should not worry too much about inflation?

Answer 1

Inflation is indeed a highly debatable concept in economics. according to some economists a moderate level of inflation is needed to push consumption. Federal reserve is of the opinion that a slowly increasing pricelevel brings profit to business. It means that slowly increasing pricelevel forces the consumers to buy. There is no possibility of sudden fall in pricelevel, so the consumers have no other alternatives than to buy their necessary items. Some economists are right with their opinion that we should not worry too much about inflation. There are some inflation which is good for the economy. When the economy runs below its capacity,i.e., it has unused resources, in that case, inflation helps to lift up the production. Availability of more dollars lead to more spending, generating more aggregate demand. Increased demand leads to more production, in turn, leads to growth of economy.

Inflation is good to handle rising unemployment. When there is continuous rise in price, people will try to get rid of unemployment by engaging themselves in some productive work and fight against the inflation. So there is an inverse relationship between inflation and unemployment. When inflation is high, unemployment will be low.