How is it possible to solve the problem of the recent inflation by increasing inflation?

Question

Believe it or not this was an actual "best resolution" the Fed Reserve had come up with to help the economy. I would like to hear some feed back. Please lets be mature about this. I'd greatly appreciate it.

Answer 1

What the Fed  had come up with is the utimate truth in economics - whether we like it or not. Hard reality is that inflation cannot sustain unless there is excess demand at current prices. Excess demand can be eliminated in two ways in the short-run:

1. Force demand to go down by allowing prices to rise high enough, or,

2. Curtail demand by rainsing taxes, reducing  govt. expenditure, introduce rationing and imposing prie controls.

The cost of both alternatives is similar: effective reduction in demand to match demand and supply.

In the long run only can supply be increased to match with demand.

Thus in the short run higher prices are kind of inevitable.  So liong as aggregate supply falls short of aggregate demand at current prices, market prices will continue to rise supply increases to match demand in the longer time horizon. Such unpalatable truth, no one wish to believe in.  Under approach 1 above, the only way to stop inflation is to curtail demand in the short-ru. Demand can come down onli if price rise fast enough- that is cure for inflation is to have higher inflation now.

Under approach 2, it may look like that inflation has subsided due to monetary policy, fiscal policy asnd administrative controls. Actually however such measures reduces demand by slowing down the economy and enhancing the future rate of inflation . So, some bitter truth is better accepted rather than thinking like children that inflation can be curtailed by taking a hit in some other way.

Answer 2

A very Jewish answer. Destroy the economy--starve everyone--You will have a degree of control.