In this paper, there are two main objectives. The first objective is to determine whether there exists a relationship between inflation and economic growth through different economic theories. The objective is more specific, as it is to investigate inflation-economic growth relationship in the Chinese market. For this purpose, models are used in order to evaluate if there is a correlation between inflation and economic growth. Once this fact is confirmed, two hypotheses are analysed and tested, these being “inflation causes economic growth” and “economic growth causes inflation” respectively, in order to determine if the correlation between inflation and economic growth is positive or negative. Finally, the Granger causality test will be used to determine whether there is a causal correlation between two variables. The paper would give a finding that there is a positive correlation between inflation and economic growth, even though the relationship between these two variables is not perfectly linear.
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