What causes Inflation?

Answer 1

It's all a matter of supply and demand. When people have plenty of money they want to spend it to acquire goods and services. This makes a demand on those goods and services more than the averegae 'need'. Imagine, for example, that a store has a supply of 100 computers for sale. The price is set at 'what the market will stand' or, in other words, what a willing buyer would be prepared to or is able to pay. If the price was $500 (£250) but only 80 people wanted to buy them then the price would be classed as too high since 20 remain unsold. The price would thus have to be dropped to encourage other buyers and when new stocks arrived the price would be adjusted accordingly to, say $450 (£225). If all 100 sold at the original price then the price is right. However if people had lots of spare cash and the demand was higher than the supply, say 120 people wanted 100 computers, then the store could increase the price to take advantage of the demand and bring the ratio back to 100 people getting 100 sales. This means that they could charge, say, £550 (£225) and still sell all the computers. Thus the price has risen by 10%. If the whole market was aware of the excessive money available then all prices would rise for goods and services, fuel, food, houses etc. If they all rised by the same amount inlation would be 10%. This is how inflation is caused. Governments try to control it by increasing interest rates which limits the money supply, increases the cost of borrowing and manufacturing and people have less to spend thus encouraging smaller price rises. Some rises in costs are inevitable as wage costs increase annually by incremental rises and across the board rises but generally they are in line with inflation.

In poorer third world countries, where galloping inflation is a problem, prices rise dramatically as shops and suppliers need to generate as much cash s possible to pay for new supplies which also rise in price. A weak currency means that richer countries like USA and those in Europe can dictate prices to the poorer countries and, basically, exploit them. An example is the price of Brazillian coffee since that country is too poor to dictate it's own terms. As USA is a major consumer Brazil depends on it's coffee sales to that country to keep it's economy stable so is not able to raise the price to what it needs as USA concerns will not pay and threaten to direct their purchases elsewhere to, say, Columbia. This would, in effect, wreck Brazil's economy so the USA has it in a stranglehold. Sadly countries like the USA do this only too often thus keeping third world countries as poor as ever and in a cycle they cannot escape. This type of inflation is called 'rampant' or 'galloping'.

Answer 2

What Causes Inflation

Answer 3

inflation is the increase in the prices of selected goods. there are two causes of inflation. they are cost and demand factors. imagine, if in a factory, the cost of inputs is on the rise. then in order to make up for the increased cost, you would rise the price of your output. such an impact can be called cost push inflation. imagine, when you are producing a product in limited supply, and the entire city wants it desperately. so there will be a competition among in the city to buy it. and this gives you a chance to charge high prices as the people are willing to pay for it. this is called demand pull inflation. increasing costs will push inflation and increasing demand will pull inflation. these are the two causes of inflation.

Answer 4

When people have to much money to spend. That is why the Fed raises the interest level, to stop people from have available credit to spend, and it keeps inflation under control.

Answer 5

inflation means too much of money chasing too few goods.so poverty will be adversly in the country.bribery will start exploiting the economy.demand for goods would be more.

Answer 6

It happens when you blow air into that little plastic nipply looking thing.

Answer 7

rebel, it's when big mama hits the din din table

Answer 8

Show off.