What is The Cause of Inflation?

Question

Ive neer understood economics, so please may someone who does explain to me what is inflation and why is does it occur.

Answer 1

Inflation is a rise in average prices from one year to the next. It occurs when the demand for something is great, but the supply is not enough which pushes the price up. Gas prices increasing would be a good example.

Another factor that affects inflation would be the money supply in the economy. If interest rates on a particular currency are lowered, this makes the money worth less, and thus this is reflected by an increase in prices. Research the move by the Fed to lower interest rates last February and this should be clearer (by the way, interest rates are lowered to let people gain easier access to money and thus boost economic activity).

Hope this helps.

Answer 2

Inflation is necessary in order to lower the quality of life of the workers.  If money is worth less, then the workers get paid less without actually cutting their wages.  The Fed prints more money, lowering the value of the worker's wages.

It is the end result of an economic system where cost and value/worth have nothing to do with each other.  What is worth more: a bar or gold or a handful of seeds?  The gold is worthless in the hands of a farmer; give it to a jeweler or an electronics manufacturer, who can add value to it through labor. There will be never be economic equilibrium; that is the driving force of Western theory.

Answer 3

Inflation can really be divided into (atleast) two types. One type might be called price inflation. This occurs when, say, the price of a Big Mac goes up. This isn't really the inflation of which economists speak, but is simply the market responding to changes in demand and/or supply.

"True" inflation is called monetary inflation. This happens when the central bank uses one of its many methods to make money out of thin air. After the money is created, there is the same amount of wealth, but more dollars chasing that wealth. So, the cost of goods will increases with respect to money, but not to other goods. That is to say that the price of things will increase, but this will not have an effect on the direct exchange value of goods, nor the utility derived from those goods.

Answer 4

greed

Answer 5

A shortage of product and large demand for it drives prices up creating inflation.