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Thumb of Michigan | IMHO, one good definition of inflation is "too many dollars, chasing too few of goods", or supply/demand factors.
One way I explained for years was like this: If you had 5 people setting around the table wanting a cup of coffee and there was only one cup available, the highest bidder might be $5 or more. Now, if at the same table there was 10 cups of coffee available, the bidding might stop at less than $1. The type of coffee didn't change the price, the demand determined the price.
With that in mind, raising interest rates, makes dollars more expensive, therefore less dollars to purchase goods. Part of the present inflation problem is the government (printing) handing out money (stimulus dollars), like candy at Halloween. It wasn't free money, just printed (borrowed) from the future taxpayers. I apologize to my grandchildren, for the debt load THEY are going to have to pay-off.
On the flip side, the government might favor inflation, because it takes less dollars to pay-off future debt (remember the government can just print money). | |
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Increasing interest rate to stop inflation????
