the relationship between inflation and growth

the relationship between inflation and growth

Let's say that country A produces 100 apples and the money is 10,000 won
A year later, let's say that the number of apples produced is the same as 100, but the money has increased to 12,000 won
Then inflation is 20 per cent
So is the country's economic policy wrong?

The reality is not that simple
If the money circulating in the economy didn't increase from 10,000 won to 12,000 won
The number of apples produced may have decreased

The increase in money supply is due to the relocation of resources through money in society
The central bank may increase its money supply, but it may also increase the demand for money in the market
(Of course, even if the demand for money in the market increases, the amount of money will not increase if the central bank tightens the supply
Then the distribution of resources will shrink and the economy will shrink
The central bank's money supply is similar to the tightening and loosening of threads when flying kites
It is to increase or decrease supply in line with the demand for money in the market.)

But if the supply of money is tightened too much for fear of inflation, production may decrease as resource allocation efficiency decreases

The choice of country A could have been one of the following two
Originally, the production volume of 100 apples was 10,000 won
1) Production of 100 apples, KRW 12,000
2) 98 apples produced, 10,000 won in money

1)In the case of, real economic growth rate is 0%, inflation rate is 20%
2)In the case of real economic growth rate -2%, inflation rate -2%
Which is a better choice?

There could have been another option
3) Production of 110 apples, KRW 15,000
Then the economic growth rate is 10%, the inflation rate is 45%

Actually, isn't number 3) better?
Now that all the people are eating 10% more apples...

In fact, if you can keep going like this in the long run, number 3) is the answer

However, the biggest problem with No. 3) is that it cannot continue like this in the long run
A big drop in the value of money changes the strategy of economic participants
I'm going to take out a lot of loans and make you buy a property...
Companies will be hesitant to make long-term investment plans
This may reduce economic growth, and it will further increase inflation

1)The choice between,2) and 3) should guarantee not only this year's prosperity but also long-term prosperity

The growth of the Korean economy in the 1970s was similar to that of number 3)
Despite many side effects, it was an era where "growth" was prioritized through rapid capital relocation
Society was able to achieve rapid economic growth by administering all capital to export companies and manufacturing industries

The goal of the Korean economy now is approximately between 1) and 2)
A 3% real economic growth rate and 2% inflation rate would be a pretty good outcome, not bad for the current situation in Korea

Now that the population is shrinking,
In the next 10 years, 20 years, unfortunately, number 2), economic growth rate -2%, and inflation rate -2%, may be the best outcome

For the long-term prosperity of society
I can't miss either the economic growth rate or the inflation rate