What is inflation ?
Answers:
Most people - even professional economists use the meanings interchangeably, sometimes within the same paragraph. In its economic sense the word is used with at least five different meanings:
(1) Any increase at all in the supply of money (money in the broadest sense, which includes credit).
(2) An increase in the supply of money (again in the broadest sense) that outruns the increase in the supply of goods.
(3) An increase in the average level of prices - that is, any wide or general increase in prices.
(4) An increase in the prices of widely used goods -such as steel or lumber or oil or foodstuffs.
(5) Any boom or period of intense business activity or prosperity.
The best of the lot, because it is precise enough not to cause confusion and still simple enough to be widely understood, is number 2 - an increase in the supply of money that outruns the increase in the supply of goods. The effects of inflation are very bad. It causes a drop in the chasing power of our money which is another way of saying that it raises prices. But goods and services are not becoming more expensive; it is our money that is becoming cheaper. Furthermore, inflation reduces the value of ordinary savings, such as savings bank deposits, life insurance, and bonds. This reduces our incentive to save. "Spend now while your money will still buy something," becomes the mode. Thus, people are lured into extravagance and speculation. In the end, if it is kept up, inflation destroys our money and creates financial chaos in which our liberty is lost that is, it brings oppressive government controls of wages, prices, and the use of our property.
All very depressing! For further info visit the link below.
ooh i should know this
Inflation is a index based on the market prices.
increases in index considered that price high
for special purposes various inflation index are been maintained.
ex.- Infaltion rate of commodities is considered while deciding the dearness allowance.
inflation is a rise in the general level of prices, as measured against some baseline of purchasing power.
Here's a basic definition.
Everyone wants to make more money. So you 'make' more through raises. People that sell goods also want to make money. So they raise prices. Now, everything is costing more! You need more money, so you demand more $$.
It's the process of widespread increase of prices without any increase of standard of living. That is all increases in pay are met by an equal or greater increase in prices of goods / services.
You know when you fill up a balloon or car tire? Duh!
A word.
The opposite of deflation.
Getting bigger, larging it
Often used when describing markets, tyres & egos.
Not to be confused with inhalation or flatulation.
Simply speaking, inflation is the continuous raising of prices in a economy.
Period.
Now, talking about the causes, there are different ones.
I will mention three:
1- The most classic, the one that all books describe, is caused by excess of money (any kind of money, not only cash, also loans from the banks) compared to the goods available.
As people has more money in their hands, they go to expend more. If the amount of available goods is more or less the same, more people will be asking for the same product and prices wiil go up.
Since money is also created by banks via their loans (another topic), the classic way of fighting inflation in a normal economy is through the interest rate:
- interest rates go up,
- people ask for less loans,
- quantity of money is reduced,
- pressure over prices aliviates.
2- The second source is called "cost inflation".
If the price of a strategic raw material such as oil jumps (due to a war, for example) , it affects the costs of plastics, transport, energy, air tickets, etc.
The industries affected by those increases will try to defend their margins raising prices of their products. The inflation will spread as a pest.
3- The biggest problem starts when people becomes used to a general price raising for a long time, or when expectations are of a new inflation to start
It is the self-fulfilling prophecy:
As they expect prices to continue raising, they anticipate purchases, increaisind demand, and not looking for lower prices in other shops. In fact, they are fueling the inflation.
The trade, also, fuels the problem, because they charge more in advance to new increases, in order not to be out of business.
Its a "psycological inflation"
All this causes are not isolated, theay act together, in a compounded form, each fueling the others. But the fire can start in each of the described ways.
Hope that this is useful.
It's measured by looking at the price of a "basket of goods". The price of a group of products is looked at over time which shows how much the cost of living has increased.
prices and wages keep going up.
The answers post by the user, for information only, UKQnA.com does not guarantee the right.