- Goods are expensive so companies can make profit
- Companies can give good salary to staff, more people get job
- With better salary, people consume more goods
- Companies invest more. Repeat
But what happens if goods keep getting expensive?
- People stop buying.
- Companies have less profit
- Less salary and people lose jobs
- Goods become cheap again
This is called deflation.
Central bank controls interest rates to make balance for this.
We keep our economy good in this way.