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Low Inflation Boosts Economic Growth?


Explain reasons why a low inflation rate may increase a country’s economic growth rate.


Economic Growth and Development

CIE October/November 2023.

Preview Answer

Low inflation can contribute to an increase in a country's economic growth rate due to several reasons. When inflation is low, it provides more stability and predictability to the economy. This stability encourages consumers and businesses to make long-term financial decisions, such as investments and spending, which can stimulate economic activity and growth. Additionally, low inflation helps to maintain the purchasing power of consumers, as prices remain relatively stable. This can lead to increased consumer confidence and higher spending levels, further boosting economic growth. Furthermore, low inflation can lead to lower production costs for businesses, making goods and services more affordable and competitive in the global market, thereby fostering export growth and enhancing overall economic performance.

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