The Truth About Economics: Part 1 Inflation

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(See Comic) Note: this Comic is United States centric, but still applicable in other countries. Over time, just about everything, except technology, seems to get evermore expensive. And recently, things have seemed to get extra expensive. Why is that? Well, there are two main reasons prices ever increase, Supply/Demand and Inflation. Supply/Demand: Changes in supply/demand are not inflation. Inflation is a broad increase in prices independent of particular goods and services. Conversely, supply/demand price increases are isolated, based on a particular good or service, and transitory. For example, if the corn crop is bad, that means less corn. If the demand for corn stays the same, the price of corn will increase in order to tame demand to a point where supply meets demand. That kind of price increase is not inflation; it is isolated and transitory. The next year corn could be a bumper crop with decreased demand, sending corn prices into a nosedive. Inflation:The reason things Tend to get Evermore expensive is Inflation, not supply/ demand. Supply/demand price increases are based on the availability of particular goods and services. inflation indexed annuity. Conversely, inflation price increases are based on the availability of money and credit. The more money there is chasing goods, the less valuable that money becomes. And so, over time, as the supply of money and credit increases, the same amount of money buys less goods, making things more expensive.US Dollar Purchasing Power 1800 to 2008 (Logarithmic) In 1933 a nickel was about equal to a dollar today. Some Simple Definitions Inflation: An increase in the supply of money and credit exceeding Economic growth. Deflation: An decrease in the supply of money and credit. exceeding economic contraction. So, the simple answer to the reason stuff in general costs so much, and generally gets evermore expensive, is because there is too much money and credit out there. In other words, the money supply is outpacing growth. Since 1913, in the United States, the money supply is regulated by the Federal Reserve. And so if prices are rising, the Federal Reserve isn't doing its job. Coming Next: Part 2 Those Weasels at the Federal Reserve, online economics class, money investment,

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