An inflation rate less than 6%, and economic growth rate of 3%.
How does low inflation lead to economic growth?
- Because the price level growth rate is simply another term for the inflation rate, the inflation rate must fall.Increased economic growth means more products for money to "chase," putting downward pressure on the inflation rate.
- The lower the inflation rate, the greater are the productive effects of a reduction.Economic growth is assessed by the rate of increase in national income, deflated by the cost of living index.National income was deflated in constant prices by the population indices to account for population growth.
- Low inflation usually indicates that demand for products and services is lower than it should be, which slows economic growth and lowers wages.This poor demand can even cause a recession with increased unemployment, as we witnessed during the Great Recession a decade ago.
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