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Inflation Rates and Economic Growth

2 March, 2015 - 12:11

Our conclusion is a simple and an important one. In the long run, the inflation rate is determined by the relative values of the economy’s rate of money growth and of its rate of economic growth. If the money supply increases more rapidly than the rate of economic growth, inflation is likely to result. A money growth rate equal to the rate of economic growth will, in the absence of a change in velocity, produce a zero rate of inflation. Finally, a money growth rate that falls short of the rate of economic growth is likely to lead to deflation.