Question

Briefly explain why an economy growing at a very high rate for a relatively long period, at a rate higher than what sustainable in the long-term, can cause inflation in the economy.

Answer 1

Answer:

Because periods of economic growth are often triggered by increases in aggregate demand, such as a rise in consumer spending, but sustained growth must involve an increase in output. If output does not increase, any extra demand will push up the price level. To prevent inflation in economy, we need sustainable economic growth.  Sustainable economic growth means a rate of growth which can be maintained without creating other significant economic problems, especially for future generations.