People often suggest that a fast growing economy is inflationary. I would argue that exactly the opposite is true. Consider this data for Venezuela and Singapore from an old Robert Barro textbook:
Venezuela (1950-90): Average RGDP growth = 4.4% Average inflation = 8.0%
Singapore (1963-89): Average RGDP growth = 8.1% Average inflation = 3.6%
Singapore grew much faster and had much lower inflation.
On the other hand, you might argue that I’m not holding “other things equal”. Actually, I did:
Venezuela (1950-90): Average money (base) growth rate = 10.7%
Singapore (1963-89): Average money (base) growth rate = 10.8%
Inflation is too much money chasing too few goods. Because Singapore produced lots more goods, the double-digit money growth created less inflation than a similar money growth rate in Venezuela. You might think of the faster RGDP growth as “absorbing” some of…
