In what way is the high inflation related to falling gdp?

Question

In the UK inflation continues to rise and gdp growth continues to fall each month. Is this related? If so, then how?

Answer 1

Usually gdp go up too. But not the real GDP.

Answer 2

haha, trick question. there is no relationship. i went to college for these kind of questions too.

Answer 3

Yes, if you have a closed economic system with a stationary amount of money, you will experience inflation.

So if GDP is falling, then there is less money coming into the country basically making the economy closed. So that would increase inflation.

Answer 4

If you look at a country like Zimbabwe.  Then perhaps it would be easier for you to see the relationship between high inflation and declining GDP.

High inflation is usually a sign that the government is mismanaging the country's economy in some way.  And mismanagement of the economy is also bad for the GDP.

But high inflation itself can also damage the economy.  Because when people don't trust the value of money.  Then they often invest their money in things that cannot loose value through inflation.  Such as gold, land, and foreign currencies.

Such investment doesn't generate any economic growth.  Because this wealth doesn't circulate through the economy the way money does.   And the economy becomes poorer as a result.