When the economy operates at a level higher than potential output, inflation tends to accelerate and, conversely, decelerates when the economy operates below its potential output. An increase in productive capacity resulting from new firm creation would therefore allow the economy to grow faster without creating inflationary pressures.
But for supervisors, less work today often means a lot more work farther down the road. But clearly, the costs of regulation and supervision alone are inappropriate indicators of overor under-regulation and supervision. Even as seen from the banks’ perspective, cries of overregulation are too simplistic since they neglect the potential long-term benefits of these reforms for banks, such as increased strength and trustworthiness.