in an inflationary economy, prices rise. That means on paper, companies' revenues rise and they have more paper money to pay their workers with. So they hire more workers and give their existing workers raises.
At the beginning of the cycle and at low inflation rates, this gets everyone thinking "more" and gets the economy turning.
At some point (well above our current 2% inflation target rate) everyone starts getting the idea that they are running on a treadmill and getting nowhere, as prices are going up faster than wages and the whole thing comes crashing down.
- buzz 2012-05-06 14:22:13 (118 views)
