Why does Inflation occur? Can someone explain it to me?

Question

For example, if the government printed money to pay back national debt and for nothing else. How does inflation occur?

Answer 1

There are apparently two accepted theories about the causes of inflation:

1) Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies.

Or

2) Cost-Push Inflation - When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.

See sources for more.

Hope this helps!

Answer 2

It occurs for the very reason you stated. The government prints money to get itself out of debt. It happened in Germany in my grandparents time. It was Adam Smith's maxim about too much money chasing too few goods (the classic definition of inflation) writ large! People wound up going to the market with wheelbarrows full of money to buy something as pure simple basic as a loaf bread! I still have some of these "inflation notes", as well as Notgeld (which literally translates as emergency notes in German) which were private currency, backed by individual companies or corporations, (called "script in the U.S.) in frames lining the walls of the foyer in my house. These things are proof positive that the government had lost all control over things economic. You can't print your way out of debt, anymore than you can pay off your Visa with your Mastercard! Sad to say, but the wallpaper behind my collection of German script is worth far more than the script itself. Let that be a lasting tribute to the folly of men (or governments) who think they can print their way out of poverty!

Answer 3

It's crazy how between 1987-1988 things cost literally about half as much as they do in today's economy.

Answer 4

This article will explain inflation for you http://en.wikipedia.org/wiki/Inflation

Answer 5

Try this.