3/25/18

What is Inflation?

Inflation is the increased amount of money printed by the government or Bureau of Engraving and Printing, which, in turn, causes the prices of consumer items to raise in price. Inflation causes the value of a currency to go down. An item doesn’t raise in value but rather the paper bills go down in value, therefore, making it necessary to pay more money for an item. In earlier times, inflation was done by the government or congress in order to gain more money for war and other matters. In some instances, the government would print money in such large quantities that the value of the currency would be worth virtually nothing. This is called hyperinflation. During these terrible times, there was a scramble for people to invest their money in items of stable value in order to maintain real currency. It became difficult for people to afford consumer items which were detrimental to retailers and vendors due to the lack of business. However, inflation isn’t always bad for the economy. In large amounts, inflation may be injurious to the economy but, in moderate amounts, inflation can benefit the economy. It is impossible to talk about inflation without talking about its counterpart, deflation. Deflation is the opposite of inflation; deflation is the decreased amount of money printed by the government or Bureau of Engraving and Printing, which, in turn, causes the prices of consumer items to lower in price. Deflation causes the value of a bill to go up. You may think that deflation is good for an economy. This was true during times of hyperinflation and over-printing. Now, however, deflation is bad. If deflation were to occur, citizens would try to save up money rather than spend it. This is truly bad for the economy. With fewer sales, companies would fail and less money would be in circulation. This leads to unemployment. Deflation will if done regularly, cause a recession. Inflation encourages people to spend and invest their money rather than keep it. If someone were to keep their money, the value of their money would go down over time which isn’t good. This will motivate people to spend and invest. If people invest their money in the stock market, they will gain money. These people will gain money, just like people who save their money during deflation, while still spending money which is increasingly good for the economy. Businesses will also improve with the increased buying and selling of commercial goods. Inflation isn’t always good, however, as it lowers the value of a dollar which isn’t excellent. In conclusion, inflation is when the value of the currency goes down; in excess, it is bad for the economy, but in moderation, it is wonderful for the economy.

3/25/2018

Inflation

 Have you ever wondered what inflation was, what causes it? It is a complex subject and is a tremendous part (sadly, not a good part) of the growing world. Let me start you off with an example. Let’s say you love eating cake and pizza. They both cost 10 dollars each, in the first year, but after inflation, in the second year, it suddenly costs 50 dollars. Because of this, you might ask, "Aww, why did my pizza get more expensive?" Well, the pizza didn’t get more expensive, your money went down in value.

So, why does inflation happen? Well, it happens when too much money is printed, and there is too much money in circulation. But, there are two different types of inflation. The first type is when people spend their money buying things they want, but the prices get higher and higher because as I mentioned before, there is a lot of money in circulation, and everyone has too much money. They bid up the prices, and in the end, the items get very expensive which is bad for the economy, and the people. And the other type of inflation is when people get their hands on a lot of money, but essential resources are scarce. There is a chain effect, like this:

We talked about what inflation is, but, does it suddenly begin without any preparation? The answer is no. A decrease in the value of currency usually occurs due to massive debts and fighting. And the reason it might start during a war is when they must pay for the soldier’s food, water, and shelter. The government prints money, and it becomes worthless since there is so much of it. Then, essentials become more expensive, and it becomes even worse than before. As I mentioned earlier, inflation could also start after a war because the people must pay back their debts. And the one way is just to print money, and this is bad for the economy and the people. The citizens lose much of their savings and can become very poor.

I’ve talked about inflation, and why it’s bad for the economy, but now I will explain why it is horrible for the people and companies. Let’s say I put 100 dollars in the bank and I live in Country A. That 100 dollars is also worth the same amount in Country B. But, suddenly, Country A goes to war with Country C, and Country A loses. They have to pay back their debt, and the government prints more money. Now, the money is losing its value in Country A, and now my 100 dollars is only worth 50 dollars in Country B. So, I lost half of my money after Country A printed money to pay for the war. What this proves is that although you still have the same amount of cash, you lose a lot of your money, and when the companies increase their price, you lose even more when you want to buy those things. Inflation is also terrible for the companies who create the products. When the companies receive the money for their products, the money can decrease so much that it could eventually become worthless!

I’ve talked about why inflation is so bad, and how it affects many people, but how do we avoid it. It's difficult, but the best way to deal with inflation is for the government to understand that if they cannot pay a debt, they shouldn’t attempt to. It is better to go slow and steady, and chip off from your debt a little at a time. If you try to finish paying a debt quickly, you might throw your country into chaos, and many poorer families can go into poverty. But, what if the inflation has already begun? Well, the best way is just to immediately spend your money on things because the things you buy will always remain that same price, inflation or not. Then, if the currency regains its initial value, or if you travel to another country, the items you have purchased will still be worth money. 
I have been talking about the bad side of inflation, but believe it or not, it is actually good sometimes. But, I need to first tell you what deflation is. Deflation is when money becomes more valuable, but it is also bad for the economy because people are saving their money, so companies can close down due to it because they are not getting as many sales as before. This caused the Great Depression, so we should try not to repeat that. Anyway, deflation is usually only good to cool down inflation, But inflation helps the economy when it is not so large, and when it is only once in a while. People go out and buy things, and the stock market, and stores both thrive because of it.

In conclusion, this shows that inflation is when there is too much money in circulation making the currency worthless at times, and it also puts many people in a worse position because their life savings are going to waste. But it is also good because it helps the stock market and companies thrive.