At last, an idea that makes economic sense: reduce VAT instead of stamp duty!

Re: At last, an idea that makes economic sense

dontaskme said:

well, not according to my definition of inflation. The money supply has doubled but prices remain the same so inflation is 0%.

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If you scale everything by a factor of two nothing has changed.

Re: At last, an idea that makes economic sense

dontaskme said:

well, not according to my definition of inflation. The money supply has doubled but prices remain the same so inflation is 0%.

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Inflation would not be 0%... it is not measured on the basis of whether prices have changed overnight.

If the rate of inflation was 2.5% and you doubled everything else overnight, inflation is still 2.5% the next day.

The rate of inflation is measured by comparing the cost of a basket of goods every month against a base date and how much prices have fluctuated since then.

Inflation would only be 0% if you took the previous day as the base date - but that's not how inflation is calculated.

Re: At last, an idea that makes economic sense

room305 said:

If you scale everything by a factor of two nothing has changed.

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If there was twice the population in Ireland (i.e. goes from 4 to 8 million), twice the money supply and twice the amount of goods and services, you would tell me that nothing had changed?

Re: At last, an idea that makes economic sense

dontaskme said:

If there was twice the population in Ireland (i.e. goes from 4 to 8 million), twice the money supply and twice the amount of goods and services, you would tell me that nothing had changed?

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I should have been more specific. Inflation is an increase in the monetary supply relative to the number of people. If you double the number of people but don't double the money supply you will have deflation. Conversely if we grow the money supply so that it increases disproportionately to the number of people, we get inflation. In your scenario, the same amount of money is still chasing the same amount of goods and services so it is not inflationary.