2007-06-23 17:01:08 · 7 answers · asked by Karole R 2 in Social Science ➔ Economics
over time prices of goods go up and up but the value of a dollar stays the same. that means that with the same dollar a person can buy less and less. (sodas used to cost 5 cents and now they are a dollar) purchasing power has diminished. the fed controls it.
2007-06-23 17:12:46 · answer #1 · answered by jcrews 3 · 2⤊ 2⤋
I wrote this on another blog to explain the inflation in Zimbabwe to someone. You can learn a partial meaning of inflation from it.
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1)Money is not a resource. It is simply a form of communication that allows resources to be exchanged. Ergo, the value of money depends on the underlying resources.
2)Government, by and large, does not create resources.
3)But government can ‘steal’ resources from the private sector/ individual citizens because the government and private sector use the same money/currency.
Simply put - if the entire economy just created a resource of “One kilogram of Oranges”. Then, no matter how much currency there was, it would buy only 1kg of oranges. If all the currency there was was $100, then $100 would buy 1 kg of oranges. If all the currency was $1,000, then $1,000 would buy 1 kg of Oranges.
Ergo if the government prints more money, it doesnt increase the resources but only causes inflation ($100 turns into $1,000).
The benefit to the government is it steals a claim to resources from its citizens - before citizens owned (say) $80, and the government owned $20 (when there was $100 in circulation). So it was split 80/20. Now (after inflation) citizens STILL own $80, but the government owns $920 - so NOW the split is 8/92. The government now has claim to over 4 times as much of the resource.
2007-06-25 22:32:45 · answer #2 · answered by Omer K 2 · 0⤊ 1⤋
Inflation measures the increase in cost of a "market basket" of items. It is controlled by the cost of individual items in the "basket" as well as the willingness of people to obtain them, even if at a higher price. Inflation ultimately controls interest rates, since people who lend money want to get enough return so that the value of the money in terms of what it will buy is maintained, plus an extra amount as profit.
2007-06-24 00:12:44 · answer #3 · answered by cattbarf 7 · 0⤊ 1⤋
Prices move up because of demand, monetary Funds or costs moving up. Nominal rates of interest move up too. Some economists think that inflation is caused by changes in monetary funds. This is very simple to see. Inflation needs money to increase prices. As fire needs air, inflation needs monetary funds. Others think that inflation is caused by higher wages. According to this economists wages cannot grow over productivity if we want to control higher labour costs.
2007-06-25 07:12:33 · answer #4 · answered by azkazk2005 6 · 0⤊ 1⤋
I thought it was so you can't just sit on your money, you have to invest it or it diminishes (or rather, happens naturally as a result of invested money growing).. the federal reserve bank prints more money when they want more inflation... i really don't know
2007-06-24 00:04:25 · answer #5 · answered by The Instigator 5 · 0⤊ 0⤋
Yep, I think jcrews hit the nail on the head.
2007-06-24 14:52:32 · answer #6 · answered by steffers27 5 · 1⤊ 1⤋
What Jcrews said............ditto that.
2007-06-24 10:13:30 · answer #7 · answered by fanofchan 6 · 2⤊ 0⤋