Why does inflation happen? Why doesn't the cost of stuff stay the same forever?
- Chuck NorrisLv 51 month ago
Historically, the main source of inflation has been increasing the money supply. This can happen in a few ways, but primarily what comes to mind is (1) the government prints more money or otherwise increases the money supply (for example, lowing money reserve requirements for banks, buying bonds back, etc.) and/or (2) consumers begin to spend money more quickly (i.e. the velocity at which money is circulating goes up) (think of money becoming like a "hot potato" - when this happens, inflation can happen). I think that usually inflation is because the government prints more money. I hope this helps.
Basically when "more dollars" are competing for goods and services, inflation happens.
- WillieLv 71 month ago
Eployees want to get paid more, so the employers have to up the prices to pay them or file for bankruptcy.
- RayLv 61 month ago
Cost is relative to currency when we speak on inflation.
The most trusted currencies have low inflationary rates, meaning every year they loose a little value for a long period of time. USD inflation rate is at 1.3% which is exceptional, so it looses aprox. 1.3% of its value every year.
Currencies do not keep the same price because of supply and demand, the price of nothing stays the same because the demand also does not stay the same.
Too much inflation is bad for obvious reasons but countries also do not want deflation because it is also bad. The purpose of money is to facilitate the exchange of goods/services. When the value of money goes up, it means its worth grows unlike the worth of goods/services, so this makes people save. While responsible people save, when everyone does it in the masses no one is spending so businesses go out and the economy collapses.
- 1 month ago
Just think of the introduction of the computer...In the beginning HUGELY expensive but as more were built and technology bettered, the price came down. One reason then for changes in price is scarcity.
- How do you think about the answers? You can sign in to vote the answer.
- random_manLv 71 month ago
Basically, because people want to make more money. That creates upward pressure on prices over time.
A few people raise the price of their goods or services, to the extent that the market will bear, and then more people do so. Eventually it becomes self-sustaining, and everyone has to raise their prices somewhat just to maintain ground.
- OiyLv 61 month ago
because the FED has performed the wrong monetary policy(Milton Friedman) The good monetary policy means the money supply must be raised regularly according to the growth of the economy.More, it can be the wrong fiscal policy too. Wrong taxes and G spending create inflation and deflation (Keynes). In sum, it can be from both the demand and supply side. Institutional factors might also create inflation. To know more, you just have to lern more. It is not just
a question in 101. Moreover, it is not the thing that you and me can do about it(again Milton Friedman)
- ZirpLv 71 month ago
1 people are trying to become richer/make profits
2 most people have to pay INTEREST on mortgages and other loans. Banks create billions of dollars out of thin air, but they don't create the interest you have to pay on those loans.
Contrary to what many claim, the creation of money, as such does not necessarily cause inflation. In 2018, the European Central Bank created 80 billion euro a month in an attempt to cause inflation, but failed. That's mainly because the billions didn't reach those who had a reason to spend it
- 1 month ago
too many people overpaying for stuff they dont need?