Federal Reserve Chairman Jerome Powell says President Donald Trump’s planned tariffs would likely lead to higher rates of inflation. He made this claim on April 16 before an audience at the Economic Club of Chicago. This somewhat gratuitous statement must be examined in light of sound economic theory: Do tariffs actually cause inflation or not?
Classic economics defines three primary sources of government funding: taxation, debt, and inflation. To tax is to levy fees on income, sales, property, and other activities to raise revenue for expenditures. Second, borrowing enables governments to finance operations through future tax revenues. Lastly, expansionary monetary policy may increase the money supply relative to the output of goods and services, raising prices and reducing the currency’s value. As Milton Friedman
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