Maybe I’m not thinking straight, but — inflation makes prices rise, so people need to spend more money, so the amount of money moving in the economy goes up, right? So GDP would go up? Not in a good way, because inflation is bad.
But if GDP decreased, I don’t see how inflation caused that. I would actually think that GDP decreased more than it appears and that inflation may mask some of the badness. But I’m not an economist.
They adjust for inflation. So if the raw number for current value of goods and services has gone up 8% but inflation is 9.4% you get a real GDP decrease of 1.4%. All of that is based on an accurate inflation estimate. If the real inflation figure is 15% then the GDP dropped by 7%.
It’s called stagflation.
We had it in the 70’s. Japan had it for about 20 years if my memory serves.
It’s a real s**t sandwich. Not politically survivable…unless you can cheat.
This is because, in a world where inflation is increasing, people will spend more money because they know that it will be less valuable in the future. This causes further increases in GDP in the short term, bringing about further price increases.
High inflation can make investments less desirable, since it creates uncertainty for the future and it can also affect the balance of payments, because exports become more expensive. As a result, GDP is decreased further. So it appears that GDP is negatively related to inflation.