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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
What else can I help you with?
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 were was not the causes for the Fall of Rome?
There were many causes of the fall of Rome including: The rise of Christianity Overpopulation-- by the end, the Roman empire was too big to maintain Tribes began attacking because they wanted revenge Inflation The increasing gap between the rich and the poor 40% of the population was slaves
What is the causes of monetary inflation?
Look here http://en.wikipedia.org/wiki/Inflation#Causes
The idea that too much money in the economy causes inflation?
quantity theory: Theory that too much money in the economy causes inflation.
What are the causes of begging in Pakistan?
inflation andunemployment.
what are the causes of running inflation?
Demand Pull Inflation , where demand increased from supply
When planning marketing startagies during times of inflation marketers must be aware inflation causes consumers to?
a
What situation are see by economics as causes failure?
Greed causes inflation; when someone raises prices, that causes someone else to raise their prices...then the next person raises theirs, then the next, the next...inflation.
How is inflation and employment levels related?
Inflation causes people to save on everything. This makes commerce to sell less. Selling less causes unemployment. Unemployment and low consumption cause recession. No inflation implies on high consumption which must be controlled as well, but is much better than inflation and recession.
What are three theories of the causes of inflation?
answer the question people god
What is a sentence for inflation?
Inflation of a ballon is what causes it to pop,which scares people
What are the causes of imflation?
The causes of inflation include the rise in the supply and demand of a product or service and an increase in wages/salaries.
Which of the following is one ofthe main causes of inflation?
Consumers demand goods faster than they can be supplied. Apex.
Who causes inflation (government or investors)?
Inflation is a measure of the rate of rising prices of goods and services in an economy. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a negative impact on society.
