What exactly is inflation, and how does it work?

Question

And what does it mean that a country has "4% or 80% inflation"?

Answer 1

inflation happens when a worker gets a rise so the imployee has to pay more and so on until it gets to high and banks start to put up intrest rates to slow it.

p.s im only yr7

Answer 2

"Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending.

"“Inflation” is defined in the dictionary as “undue expansion or increase of the currency of a country, esp. by the issuing of paper money not redeemable in specie” (Random House Dictionary). It is interesting to note that the word “inflated” is defined as “distended with air or gas; swollen.” Ayn Rand

"The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.

Alan Greenspan, “Gold and Economic Freedom,”

Capitalism: The Unknown Ideal; by Ayn Rand

Answer 3

Inflation simply means that Too Many Dollars are Chasing Too Few Goods. That function causes prices to rise because it now takes more dollars to purchase the same amount of goods. But all that is only possible if the Fed has allowed their to be excess money in the economy.

Answer 4

Inflation means the change in general price level. What is general price level? Whatever you see in the market has their own prices, and they have tendency to increase because of the cost of production and other factors. Every month someone (BEA) searches for price increases of some specific products  and announce the average price increases on those products. If those prices have increased 4%, we say we have 4% inflation..  80% inflation means in January 2008, Iphone was $400 and In January 2009, the price will be $720.  This is no joke..

Answer 5

It is a rise in general pricing levels.  Looking at a nation's inflation rate is attached to staple products (bread, milk, utilites, and many many more) and they get the increase with the price change of the items.  

Example:

2006

Bread $1, Gas $2, milk $2 = $5 total

2007

Bread $1.05, Gas $2.45, milk $2 = $5.50

Inflation would be 10%

The 4% country has a stable economy while the 80% country has a less stable economy.