What is inflation?


H

hEE Hee

Could somebody please explain it in simple words?
what is inflation
thanks
 
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W

W.C. BILL

hEE Hee said:
Could somebody please explain it in simple words?
what is inflation
thanks

Inflation simply refers to rising prices. Deflation is the opposite --
falling prices.

Inflation in and of itself is not necessarily a bad thing -- some is
expected as a result of a growing economy. However, it is uncontrolled
"runaway inflation" that can wreck havoc on an economy.

~bill in tx
 
P

Paul A Thomas

hEE Hee said:
Could somebody please explain it in simple words?
what is inflation

Inflation is where the cost of goods and services increases at a pace faster
then your paycheck does.

A depression is where you have no income, but you still need to buy goods
and services.
 
S

SIB-er

I sure have depression when I have no income.
So, I wonder who invented this term - psychiatrists or accountants who
visited psychiatrists? And how tight depression is related to accountancy?
 
A

Arnold

In simple words, a complicated scenario:

Inflation occurs when there is a too much demand for a limited supply of
goods. (Everybody wants to buy it, but there's not enough to go
around.) This creates an imbalance in supply and demand. Prices
increase as the goods become even more scarce and people offer more
money for what is still available. (Pretty soon, only the rich can
afford to buy it.) Because prices are higher, the demand for those
goods stabilizes and the prices stabilize too. (Now, there are enough
goods for everyone that can afford them, so prices level off.) Often,
when prices have increased, new sources of those goods become
available. This stabilizes prices or even pushes them down. (Higher
prices mean higher profits and this attracts competition, which makes
more goods.) In times of loose money policy, low interest rates,
periods of rapid economic growth, consumers have more money to spend.
(Prosperity means the public has money to spare.) This often translates
into increased demand for a supply of goods that has remained stable,
again causing inflation. As demand grows, factories increase production
(increasing supply), which creates new jobs for more people (increasing
demand even more). All of these events are going on simultaneously in
numerous scenarios, oil and gas, real estate, timber, gold, high
technology, etc. Each scenario has its own inflation rate, imbalance or
stability in prices. Some scenarios are interconnected with others.
(Higher costs for oil and gas translates into higher costs for flying,
transportation of goods from factories to retailers, and demand for fuel
efficient cars.) In another scenario, when a manufacturer tries to
increase production, it may have to build a new factory, which creates
more demand in the construction industry, driving up prices. When the
factory is completed, new employees must be hired, which creates demand
in the labor market. (Prices increase in the cost of construction and
hourly wages are increased to attract qualified employees from their
present jobs.)

Sometimes, just a threat to a supply of goods (recent terrorist activity
in Saudi Arabia) can cause speculators to prepurchase future production
(as in the futures market of the crude oil industry). Their
prepurchases (of future crude oil deliveries) drive the price of goods
up, even though the actual supply and actual demand have remained about
the same. (You have probably noticed the increase in prices at the gas
pump.) If the expected (terrorist) threat does not affect the supply,
the price will not drop until the higher priced crude oil is purchased
and used. (Prices won't drop until that high priced oil is used up.)

Deflation, on the other hand, is just as complicated, maybe more. It
can kill an economy quicker than any terrorist. Inflation, on the other
hand, in small doses, is expected, cannot be prevented, and is
considered a sign of a healthy, growing, dynamic economy.

Arnold
 
B

Barrnabas Coillin

Inflation is where the cost of goods and services increases at a pace faster
then your paycheck does.

A depression is where you have no income, but you still need to buy goods
and services.
A recession is where your neighbor is out of work. A despression is
when you are out of work.

Inflation is where coroporations raise prices faster than wages and
then wonder why people aren't buying.
 
R

Ron Todd

So, I wonder who invented this term - psychiatrists or accountants who
visited psychiatrists? And how tight depression is related to accountancy?
Neither. The term "depression" was created to replace the previous
term "panic." This is a historical example of "spin." I think it was
another FDR administration innovation.
 
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H

HumbleMan

Thanks Arnold for your detailed reply.

| In simple words, a complicated scenario:
|
| Inflation occurs when there is a too much demand for a limited supply
of
| goods. (Everybody wants to buy it, but there's not enough to go
| around.) This creates an imbalance in supply and demand. Prices
| increase as the goods become even more scarce and people offer more
| money for what is still available. (Pretty soon, only the rich can
| afford to buy it.) Because prices are higher, the demand for those
| goods stabilizes and the prices stabilize too. (Now, there are enough
| goods for everyone that can afford them, so prices level off.) Often,
| when prices have increased, new sources of those goods become
| available. This stabilizes prices or even pushes them down. (Higher
| prices mean higher profits and this attracts competition, which makes
| more goods.) In times of loose money policy, low interest rates,
| periods of rapid economic growth, consumers have more money to spend.
| (Prosperity means the public has money to spare.) This often
translates
| into increased demand for a supply of goods that has remained stable,
| again causing inflation. As demand grows, factories increase
production
| (increasing supply), which creates new jobs for more people
(increasing
| demand even more). All of these events are going on simultaneously in
| numerous scenarios, oil and gas, real estate, timber, gold, high
| technology, etc. Each scenario has its own inflation rate, imbalance
or
| stability in prices. Some scenarios are interconnected with others.
| (Higher costs for oil and gas translates into higher costs for flying,
| transportation of goods from factories to retailers, and demand for
fuel
| efficient cars.) In another scenario, when a manufacturer tries to
| increase production, it may have to build a new factory, which creates
| more demand in the construction industry, driving up prices. When the
| factory is completed, new employees must be hired, which creates
demand
| in the labor market. (Prices increase in the cost of construction and
| hourly wages are increased to attract qualified employees from their
| present jobs.)
|
| Sometimes, just a threat to a supply of goods (recent terrorist
activity
| in Saudi Arabia) can cause speculators to prepurchase future
production
| (as in the futures market of the crude oil industry). Their
| prepurchases (of future crude oil deliveries) drive the price of goods
| up, even though the actual supply and actual demand have remained
about
| the same. (You have probably noticed the increase in prices at the
gas
| pump.) If the expected (terrorist) threat does not affect the supply,
| the price will not drop until the higher priced crude oil is purchased
| and used. (Prices won't drop until that high priced oil is used up.)
|
| Deflation, on the other hand, is just as complicated, maybe more. It
| can kill an economy quicker than any terrorist. Inflation, on the
other
| hand, in small doses, is expected, cannot be prevented, and is
| considered a sign of a healthy, growing, dynamic economy.
|
| Arnold
|
| hEE Hee wrote:
|
| >Could somebody please explain it in simple words?
| >what is inflation
| >thanks
| >
| >
| >
| >
|
|
 

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