What Are The Causes Of Economic Inflation

People are complaining about the rise of everyday prices, how a pack of sandwiches used to cost about 1 USD is now selling at 2 USD. It does not require you have an economic degree to know about inflation. You can have an idea of what are the causes of economic inflation by reading about it online or even newspaper. It is a simple thing in an economic sense and everyone can understand it. Understanding inflation is important because you should know about the relationship that economic forces have in shaping our modern life.

Inflation is the current rate of increase in price for the goods in the market. That is the food you eat, the clothes you wear, your electrical bill and a lot more. Although inflation rate can be mathematically measured it is more than just a numbers and some graphs. The fist rule of inflation is that money has no value for itself, the value of money comes from how much people will accept it as a medium that they can use to trade it for other things are necessary to them. Thus, gives money its value.

When an amount of money is measured against what the same amount of money can buy now and few years later, that is what measure mathematically measured by the economics and what we always heard from the news, the inflation rate.

The most common cause of the economic inflation is the growing rate of the supply of the money into the market. When the money printed by the Federal Government is in the market, it will dilute the value of the money that is already in the market. For example, there is a sandwich that is selling for 1 USD and the current supply of money in the market is 10 USD.

With everything being the same, the Federal Government printed another 10 USD and supply it into the market. Making the market now having a supply of money of 20 USD. The sandwich maker will need to use the same amount of lettuce, bread, tuna to make the sandwich but selling for 1 USD will definitely will not allow her to gain profit. She then raises the price to 2 USD to gain the same profit when she was selling the sandwich for 1 USD.

When there is more money in the market, the lower the value of the money is and the seller will demand more money for their valuable goods. This situation than bring the price higher. That, is what you call inflation.

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