What are the costs and causes of inflation?

Question

What are the costs and causes of inflation?

Answer 1

Inflation is a rise in the general price level including wages so the costs to the economy are due to the uncertainty about future prices and the increased risk it adds to investment. The increase in the money supply at a rate greater than GDP growth is what permits long term inflation (decades)  but short term a sudden increase in demand (for example a war) of a short fall of the supply of a essential good can produce a burst of inflation. Prior to the regular intervention of the fed the inflationary periods were balanced by deflationary periods so the long tern price changes were near zero but in the short term the value of the dollar  was more variable than it is today. The Fed actively work to prevent deflation so now inflation is cumulative.

http://www.visualizingeconomics.com/2008...

Answer 2

if you want to know what are the causes of inflation , you should start knowing the different types of inflation. we generally have to major type of inflation. 1- Demand Pull Inflation which is initiated in the demand side of the market 2- Cost Push inflation which is created on the supply side of the market and by supply side we mean producers of Goods and Services in the economy.

now if the level of aggregate demand (such as the level of consumption , Investment, export ) increases for any reason (such as change in the quality of the products, change on the Interest rate, etc) this will create inflation in the market which is called demand pull inflation, bad news is that there is inflation, good news is that bcz of this higher demand GDP will grow.

cost push inflation is occurred when the cost of production in the production process has increased for different reasons, such as when workers negotiate for higher wage rate. or the interest rate has increased so borrowing for the propose of investment is more expensive, etc. in this situation producers have to decrease the level of their output to avoid these extra expenses. this will create Cost Push inflation , the bad news is inflation , the second bad news is that there is less product (Less GDP ) so between these two types of inflation , the cost push is the least favorite one.

Answer 3

Two words. The FED.

Answer 4

The Cost of Inflation:  Its like a tax on money. The higher the inflation, the less you get for your dollar.

The Cause of Inflation:  It is strictly a monetary policy creation. If you don't allow the money supply to be increased, it is impossible for inflation to exist. Which means the folks with the power to add or subtract our fiat currency from the economy are technical at fault for inflation in the economy. (ie: The Fed)

Answer 5

Inflation are cause by shortage and increase in demand.

Example. the demand for fuel increase, but the oil production didn't increase. Therefore, there is a shortage and price increases.