what is inflation ? explain in detail.?

Question

with regard to financial matters, how do inflation effect our economy?

Answer 1

I disagree with words-sml. I believe that the government is more of a problem in controlling inflation that a help. If inflation, on most items, is left in the hands of the consumer there is a balance between the maker of the goods and the consumer. If the government gets into it, the maker of the goods either stops making the goods or the quality of the goods go down. If there is a stoppage, then there is no loaf of bread to buy except for the lucky few who can find a "black market" and has enough money to buy from this market. If the government stays out of it, the consumer decides what he/she is willing to pay for that loaf of bread and when the price goes too high, the consumer buys another product and the price of the loaf of bread goes down until the consumer is willing to buy the bread again. Words-sml method of controll has been tried before i.e. Russia, China, and Korea. There was massive shortages of food and other consumer goods in these countries, I believe that inflation has a very beneficial effect on our economy as everyone wants to make money so that they can buy what they want, therefore, they work to product goods and services. The cost of goods means a increase in the amount of goods and the quality of the goods is higher to encourage the consumer to buy. Which means that the cost of the goods,especially the basics that everyone must have in order to survive is within the buying power of everyone.

Answer 2

In mainstream economics, inflation is a rise in the general level of prices, as measured against some baseline of purchasing power. The prevailing view in mainstream economics is that inflation is caused by the interaction of the supply of money with output and interest rates. In general, mainstream economists divide into two camps: those who believe that monetary effects dominate all others in setting the rate of inflation, or broadly speaking, monetarists, and those who believe that the interaction of money, interest and output dominate over other effects, or broadly speaking Keynesians. Related terms include deflation which is a falling general level of prices, disinflation which is the reduction of the rate of inflation, hyper-inflation which is an out of control inflationary spiral and reflation which is an attempt to raise prices to counter act deflationary pressures.

Answer 3

Inflation is an increase in the prices of goods (without a corresponding increase in the value of the good).

You - as a worker want to make more money, so that you can buy more things for your life. So you ask for a raise. With a raise, you have more money to spend.

A seller of goods wants to maximize their profits and will charge as much as possible for their goods. As people have more to spend, a seller can increase the price of goods.

the fault of this is that people continue to pay more and more for things without 'getting ahead'. That is, they buy a loaf of bread for $1.00 and then 6 months later pay $2.00 for the identical loaf of bread.

Without the government controlling the money supply, prices will spiral out of control ($10,000 for a loaf of bread). The relative cost of the bread is the same (you might be making a million dollars a year) but the 'cost' increases.

Answer 4

Austrian ecomomics views inflation as the money supply itself, and views moves in the general price level as being subsidiary to changes in money supply. While this is not a mainstream view, Austrian economics, as one of the original marginalist schools of economics, has had considerable influence on both neo-classical and Keynesian schools of thinking.