Question

President Biden wants to spend $3 Trillion on Infrastructure improvement. Republicans claim this will be inflationary. Why

Answer 1

Answer:

Republicans will claim that such a large spending in infrastructure could be inflationary mainly because of two reasons:

1. If most of the infrastructure bill is financed by money creation from the Federal Reserve, it could always exist the risk of higher inflation due to the growth of the money supply in the economy.

2. If the economic recovery goes faster and better than expected, then, such a large spending bill could theoretically overheat the economy, and cause inflation.

Both of these reasons are highly debatable, and are contentious not only among politicians, but also among economists.