The Benefits of Inflation
- If an economy is experiencing demand-pull inflation, then higher AD and a steady rise in the price level may encourage firms to increase output
- Psychologically, workers will like an increase in their wages, even if it has no real impact
- Inflation allows firms to cut their costs by not increasing wages
- Wage rates would decrease in real terms, but this means that firms don’t have to make people unemployed, as their costs have been cut via inflation