What is INFLATION ?

Question

explaination required with an example...will anyone make me understand this one.

Answer 1

higher price due to circulation of curency with out reference to actual material value.

Answer 2

for definitions going to wikipedia is usually the fastest way to get an answer.
Inflation is all about the relative value of money and the goods and services we expect in our lives.
Inflation is when the prices for goods and services are getting larger. When I was a boy a normal sized candy bar was a 5 cents. Now one is luck to find one for 50 cents. When I first went to work in 1974 the state of oregon was renting a computer from IBM for a million dollars a month. Today my laptop that cost less than two thousand has more memory of all kinds and runs faster than that large IBM computer did. My point is that prices do not stay the same. The value that people place on them changes for lots of different reasons. Inflation is whn the prices in general are going up. Deflation is when the prices in general are going down. There are lots of side effects of both.

Answer 3

Inflation means rise in the prices of goods and commodities consumed by people over a period of time..For example a bag of wheat costs you Rs 100 in 2005 ,[if inflation rate is 4percent ] the same will cost you you Rs 104 in 2006.Inflation occurs due to unfair trade practices and decrease in production of essential items of daily use

Answer 4

When the value of money decreases, it is called inflation. Suppose you buy a kg of rice at Rs 10/- this week and the same quality of rice costs Rs 11/- next week, then the inflation has creased by ten percent compared to the previous week.

Answer 5

It is a substantial rise in prices caused by an undue expansion
in paper money or bank credit.

In other words the banks are withholding money or credit to increase their profits.

The fluctuation in their distribution of money or credit is the only
cause for inflation.

The Federal Reserve came to power Dec. 23, 1913. It is neither federal nor a reserve. It is the banking industry. They are the controlers of the U.S. money.

If you would like more info on this go to: apfn.org/apfn/reserve

Answer 6

Economics higher prices - an increase in the supply of currency or credit relative to the availability of goods and services, resulting in higher prices and a decrease in the purchasing power of money

Answer 7

its when the cost of living goes up or inflates.

hence the word inflation

Answer 8

inflation is actually the increase in general level of prices
eg. price hike of food products

Answer 9

when u don"t get what u are getting in same price....its inflation

Answer 10

In mainstream economics, the word "inflation" refers to a general rise in prices measured against a standard level of purchasing power. Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy. Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices, and the GDP deflator, which measures inflation in the whole economy.

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. Other theories, such as those of the Austrian school of economics, believe that an inflation of overall prices is a result from an increase in the supply of money by central banking authorities.

Related terms include: deflation, a general falling level of prices, disinflation, the reduction of the rate of inflation, hyper-inflation, an out of control inflationary spiral, stagflation, a combination of inflation and poor economic growth, and reflation, which is an attempt to raise prices to counteract deflationary pressures.

Measuring inflation is a question of econometrics, that is, finding objective ways of comparing nominal prices to real activity. In many places in economics, "real" variables need to be compared, in order to calculate GDP, effective interest rate and improvements in productivity. Each inflationary measure takes a "basket" of goods and services, then the prices of the items in the basket are compared to a previous time, then adjustments are made for the changes in the goods in the basket itself. For example if a month ago canned corn was sold in 10 oz. jars, and this month it is sold in 9.5 oz jars, then the prices of the two cans have to be adjusted for the contents. The result is the amount of increase in price which is attributed to "inflation" and not to improvements in productivity.

This means that there are many measures of inflation, depending on which basket of goods and services are used as the basis for comparison. Different kinds of inflation measure are used to determine the real change in prices, depending on what the context is.

The role of inflation in the economy
In the long run, inflation is generally believed to be a monetary phenomenon, while in the short and medium term, it is influenced by the relative elasticity of wages, prices and interest rates. [1] The question of whether the short-term effects last long enough to be important is the central topic of debate between monetarist and Keynesian schools. In monetarism, prices and wages adjust quickly enough to make other factors merely marginal behavior on a general trendline. In the Keynesian view, prices and wages adjust at different rates, and these differences have enough effects on real output to be "long term" in the view of people in an economy.

A great deal of economic literature concerns the question of what causes inflation and what effect it has. A small amount of inflation is often viewed as having a positive effect on the economy. One reason for this is that it is difficult to renegotiate some prices, and particularly wages, downwards, so that with generally increasing prices it is easier for relative prices to adjust. Many prices are "sticky downward" and tend to creep upward, so that efforts to attain a zero inflation rate (a constant price level) punish other sectors with falling prices, profits, and employment. Efforts to attain complete price stability can also lead to deflation, which is generally viewed as a negative outcome because of the significant downward adjustments in wages and output that are associated with it.

Inflation is also viewed as a hidden risk pressure that provides an incentive for those with savings to invest them, rather than have the purchasing power of those savings erode through inflation. In investing inflation risks often cause investors to take on more systematic risk, in order to gain returns that will stay ahead of expected inflation. Inflation is also used as an index for cost of living adjustments and as a peg for some bonds. In effect, inflation is the rate at which previous economic transactions are discounted economically.

Inflation also gives central banks room to maneuver, since their primary tool for controlling the money supply and velocity of money is by setting the lowest interest rate in an economy - the discount rate at which banks can borrow from the central bank. Since borrowing at negative interest is generally ineffective, a positive inflation rate gives central bankers "ammunition", as it is sometimes called, to stimulate the economy.

However, in general, inflation rates above the nominal amounts required to give monetary freedom, and investing incentive, are regarded as negative, particularly because in current economic theory, inflation begets further inflationary expectations.