What is the correlation between inflation and GDP?

Question

Can a country have a high inflation rate and high GDP growth simultaneously? Serious answers only, please.

Answer 1

GDP = (Total dollar value of goods and services changing hands) MINUS (Inflation)

Yes, GDP can grow, even when there is inflation. But for that to happen (theoretically) more goods and services must actually be exchanged, rather than having the prices for the same amount of goods and services increase.

One of the reasons that the USA is able to claim that GDP is growing is that the Fed and the US Government are "fudging" the inflation statistics through the use of "hedonic adjustments", "substitution", and other methodologies. These methodologies make the inflation rate look lower than it really is. Therefore, because a smaller percentage gets subtracted out of the "total value of goods and services exchanged", it looks as if GDP is growing (or growing faster than it actually is).

Answer 2

Relationship Between Inflation And Gdp

Answer 3

In a cost-push inflation it is not the case. The cost-push inflation is usually imported by an external shock. For example a rise in oil prices cause an increase in the prices of all goods that use oil as a raw material (due to increasing production costs). However in demand-pull inflation a high GDP can be observed. In case there is a high demand in the goods market, GDP rises, but this high demand causes also the prices to go up and causes inflation. Later on, the Central Bank may decide to take steps in order to reduce inflation and coold down the economy (slow down the GDP growth) or to accelerate the growth (but at the expense of some inflation). It may be concluded that there is a positive correlation between inflation and GDP.

Answer 4

The relationship is not so direct. The rate of inflation has a bearing on the market rate of interest. A higher rate of inflation forces the Central Banks to raise the interest rates. This increases the cost of credit for the industry and their margins are squeezed. In absence of adequate demand (assuming the inflation is cost-push), the producers may end up lowering their production. ON the other hand, moderate inflation favours the producers due to the working of the profit-profit spiral, which implies the profits of the producer gets increased in inflationary conditions. But the final effect of the inflation on GDP would depend on the magnitude of inflation and and the demand in the market.

Answer 5

a rise in inflation(price level) may cause a increase in nominal value of GDP but a rise in real GDP is may or may not take place. e.g, a 10% increase in prices will cause the money value of the GDP to rise up 10% but there is on real growth (if production capacity remain constent)
even than a country can have a simultaneous rise in both real GDP and inflation but it is a rare case

Answer 6

Not really, GDP really depends on productive workers so it is irrelevant whether non productive workers work in unproductive jobs such as teaching, the law and prostitution, or are unemployed. However immigration to fill non productive jobs, or to swell unemployment must have a negative effect on GDP per capita.