Intoxinator t1_j1h3nju wrote
Reply to comment by urmomaisjabbathehutt in Inequality in annual earnings worsens in 2021: Top 1% of earners get a larger share of the earnings pie while the bottom 90% lose ground by sillychillly
“Aggregate demand might increase because there is an increase in spending by consumers, businesses or government, or an increase in net exports. As a result, demand for goods and services will increase relative to their supply, providing scope for firms to increase prices (and their margins – which is their mark-up on costs). At the same time, firms will seek to employ more workers to meet this extra demand. With increased demand for labour, firms may have to offer higher wages to attract new staff and retain their existing employees. Firms may also increase the prices of their goods and services to cover their higher labour costs.[2] More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.”
US just pumped a trillion dollars of spending into the economy. That’s not going to be a weak effect on inflation.
urmomaisjabbathehutt t1_j1h5dhb wrote
The link i provided refer to that
so the while the case study of St lous federal reserve indicate that goverment spending had little to no effect
On the other hand, modern studies have found that the current link between government spending and inflation may be stronger.In particular, the 2022 inflation spike followed two major federalspending programs under two administrations. The first, the CARES Act, passed in March 2020, while the American Rescue Plan passed in March 2021.Collectively, these initiatives aimed to minimize the economicdevastation of Covid-19 by distributing three stimulus checks, expanding unemployment benefits and providing extra funds to state and local governments.While experts have credited these Acts with possibly preventing a recession, economists have also found that their passage correlates with an unusual spike in inflation. By providing extra capital to American households, economists note, consumers were able to go out and spend money they wouldn’t have had otherwise. In turn, this increased consumer demand, pulling up prices.However, a recent analysis from the San Francisco Federal Reservefound that government spending only contributed to about threepercentage points of today’s inflation. These findings corroborate an October 2021 paper that suggested stimulus checks made inflation slightly worse – but not to the extent we’re seeing now
basically if they are right goverment spending may affect inflation depending on how is been used but is not the cause the main reasons for the current inflation we are seeing
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