Who is this Inflation guy anyway?
What IS inflation?
The literal definition is "a general increase in prices and fall in the purchasing value of money." Simply put, the more money there is the less value it has
Some inflation examples
1950 pricesA one-way flight from New York to California : $88
Chevy Corvette : $3000
One pound of coffee : $0.79
A one-way flight from New York to California : $216
Chevy Corvette : $55,000
One pound of coffee : $4.50
1 US dollar in 1950 = $8.91 now
What causes it?
Inflation happens for two main reasons. Whenever supply is higher than demand or whenever the federal reserve prints more money
Sometimes inflation gets so bad that it can cripple an economy. A perfect example is in Germany after World War 1. To pay war reparations more money had to be printed. This caused mass inflation, so much that people had to fill wheelbarrows full of money to pay for a loaf of bread
Some inflation is good!
A little bit of inflation (1-3%) is actually good for the economy. It can help spur economic growth! Anything over 3% can really start to get bad, though
Deflation is a decrease in the general level of prices. Happens when the supply of money increases more slowly than the supply of goods and services. This happened primarily in 1929 and 1933 during the Great Depression. Prices were cut by as much as 25%