Inflation reflects itself first in a lowering of the actual rate of interest beneath the natural rate.

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My good friend and sometime mentor, Brian Wesbury, argues that the natural rate of interest is the same as the nominal GDP growth rate.

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Well, if the set interest rates lower than the natural rate then they will have rising inflation and output which will mean an ever increasing natural rate and even faster inflation until eventually the economy moves into hyper-inflation and their control over the medium of exchange collapses.

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