If money became worth more over time, there’d be an incentive to hoard it, which in turn would make it scarcer in circulation and worth more. Of course it’s more complicated in real life, and the cycle would eventually break, but that’s the gist of why deflation (what that is called) is seen as a bad thing.
Minor inflation is pretty harmless. Exactly 0 change in the value of money might be good too, but it’s right next to deflation. So, the usual target amount is a percent or two of inflation per annum, to be safe. Central banks achieve this primarily by lending money out, at a higher or lower rate of interest as conditions demand.
No, you have to lend it to someone else for that, who probably spends it. And it never really matches what it would be doing if invested, and if it’s something like a savings account the interest you earn might even be less than the inflation rate. There’s a whole logic to this.
Collection of interest and profit from investments definitely are included in the reasoning of central banks.
If money became worth more over time, there’d be an incentive to hoard it, which in turn would make it scarcer in circulation and worth more. Of course it’s more complicated in real life, and the cycle would eventually break, but that’s the gist of why deflation (what that is called) is seen as a bad thing.
Minor inflation is pretty harmless. Exactly 0 change in the value of money might be good too, but it’s right next to deflation. So, the usual target amount is a percent or two of inflation per annum, to be safe. Central banks achieve this primarily by lending money out, at a higher or lower rate of interest as conditions demand.
It does become worth more if you hoard it. They call that interest.
No, you have to lend it to someone else for that, who probably spends it. And it never really matches what it would be doing if invested, and if it’s something like a savings account the interest you earn might even be less than the inflation rate. There’s a whole logic to this.
Collection of interest and profit from investments definitely are included in the reasoning of central banks.