Zero Inflation or stable price level policy norm goes back to classical economics and has inspired many governmental policies over last decades
In this economic situation price stability goes hand in hand with total spending or aggregate demand measured in dollar terms .Producers usually like this because puts them in a comfort zone of avoiding shortages or excess inventories in the products they produce.
This stability in aggregate demand avoids fluctuations in the real market and thus this idea works in a stationary economy only and advantages of this policy only in a stationary economy would be as follows
• This claims to stop unfair transfer of wealth from creditors and borrowers (when prices fall creditors profit and when they rise debtors profit and stability in prices halts these movements)
• This will allow the price –system to do its job by minimum of money price changes by purging any need for general price changes to compensate changes in the supply of or demand for money.
• Uncertainty in markets
Issues with Zero inflation
• Suggested salary increases are not quantifiable
• Investments halt or slowdown
• Would work in a stationary economy which is not practical
No comments:
Post a Comment