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0 pointsgeorgeecollins3y ago0 comments

That's not quite right, because if you only reduce demand you could also reduce supply and prices would be unchanged. Higher interest rates reduces money supply (which can induce a recession) but does not necessarily reduce the supply of goods. Less money chasing the same amount of goods (ideally) causes lower prices.

I don't think you are wrong intuitively. I am just trying to be a little more specific because get very vague about monetary policy and it leads to some bad assumptions.

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apropos_g3y ago

> but does not necessarily reduce the supply of goods

Every mainstream economist agrees that rising interest rates increases unemployment.

Well you need human beings to go and make stuff like food and gas. That stuff is also already made as efficiently as possible. So supply is definitely, also, going to be reduced.

georgeecollinsOP3y ago

I think you are right, but keep in mind we are currently in the middle of raising interest rates and unemployment has not gone up. So what I am trying to say is, rather than say A (rising interest rates) -> D (recession), acknowledge what happens is A (rising interest rates) -> B (less money supply) -> C (less employment) -> D (recession)

Because if you don't acknowledge the steps, you can't explain what is happening today. Rates are going up and unemployment isn't. The economy is complicated.

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