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When the government needs money, it does this by creating debt. It will say to the Fed "create some financial product for us" and the Fed will print some paper, call it 100 million and then find people to buy this. The government then pay a tiny bit of interest on this to make it attractive as an investment e.g. 1.5% per year.
Because the system had X amount of money in it, and now has X + 100 million in it, each dollar is actually worth a little bit less. So what cost 50c yesterday might cost 51c today. This is because each dollar has been diluted by the extra money the government printed.
Inflation is a bad thing - it's a bit like a hidden tax. The government can decide they need 100 million dollars for whatever reason and just get it. Nice. But that extra 1c you pay on that product is a "tax" that you pay without realising it.
There is a pressure to keep this down, as otherwise the fabric of society falls apart - Google hyperinflation Germany world war to see an extreme example of how we simply can't function if inflation is too high
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What is the effect of rate of inflation changes on the value of the firm?
Being that inflation is the decrease in the value of the dollar, it causes most firms to lose real value (they may still grow nominally). There are a few exceptions to this. For instance, if a firm is in a lot of debt, inflation helps them by making their debt smaller.
In normal cirucmstances is there a short run tradeoff between the rate of inflation and the rate of unemployment?
Yes. Inflation causes businesses to have to cut costs, and labor is one of the easily cuttable costs. See the Phillips Curve.
What are the main Causes of food inflation in Pakistan in recent time?
because of pressure of population ,loadsheding ,more demand for food items,unemployement,
What was the inflation rate after the great depression?
We were on the gold standard then. No fiat currencyhttp://inflationdata.com/inflation/images/charts/Annual_Inflation/inflation_Cumulative.htmI don't think there was much inflation after the depression. During the depression there was deflation. The economy recovered slowly so there was no spike in inflation.
What was the first economic crisis of the US?
Most ensure the "Great Depression", but the times we are living in now will only get worse. Big corporations/the rich are controlling the poor/middle class by giving the corporations and the rich massive tax cuts. More money to the wealthy and less to the middle and under classes which will cause massive inflation. Yes. The "Great Depression." And Inflation is indeed what threatens the economy, but it's important to know what causes inflation. Below is part of the definition from American Heritage Dictionary, but in simple terms, it is when there is a lot of money being put into the economy. This excess causes the value of each dollar to go down, so it costs more to buy a loaf of bread, for example. When the federal Reserve puts a lot of money into the economy, it causes inflation. Inflation has nothing to do with class warfare, the rich against the poor. "...or a persistent decline in the purchasing power of money, caused by an increase in available money and credit beyond the proportion of available goods and services." Class warfare is very important because of the amount of money being put into the economy by each class. Inflation is also caused by printing more money than what's worth in gold that a country has.
