Question

In: Economics

If “inflation is always and everywhere a monetary phenomenon,” why did the huge expansions of central...

If “inflation is always and everywhere a monetary phenomenon,” why did the huge expansions of central bank money supply by the Federal Reserve, the ECB, and the Bank of Japan between 2007 and 2015 not result in high inflation in those economies?

Solutions

Expert Solution

. Inflation up to a particular level is always a good thing it doesn’t harm the economy even it is good for the investor and it is good for the economy to expand the productive activities so inflation is not always a bad thing but it is considered to be a productive thing but only upto a particular level then after inflation creates a very difficult situation in the economy.
Inflation is always and everywhere a monetary phenomenon but use expansion of Central Bank money supply by the Federal Reserve and the ECB and the bank of Japan between 2007 and 2015 not result in high inflation India’s economy because here the money expansion is related to the expansion of economic activities in a productive sense the expansion of employment the expansion of basic infrastructure and the expansion of new technology establishment it is a case where people are considered to be a productive element in in the development of the economy.
So in these economies the purpose of money expansion is only the expansion of productive activity is not just to increase the money supply in the economy because the concept of investment multiplier and the money multiplier applicable when there is a chance of investment and expansion in the economy.
The central bank of these economies providing the money for the recoveries of the economy and for the purpose of maintaining the price stability in the economy.


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