Inflation Case

Inflation

Inflation is when the cost of goods and services in the marketplace all go up at once. There are two main types of inflation: Demand-pull inflation, and cost-push inflation. Demand-pull inflation happens when people's incomes rise, but the amount of goods and services in the marketplace remain the same. Since people have more money to spend, they are willing to pay more for goods and services. In other words, the total demand will go up, which will cause prices to rise. Demand-pull inflation has been described as "more money chasing the same amount of goods." Cost-push inflation happens when the cost of producing the item goes up. This means that the total supply for an item goes down, and again prices rise.

Demand-pull Inflation can be represented by the equation MV=PQ. M is the amount of money available to spend, V is the velocity that the money is spent at, in other words how many times one dollar is spent as it circulates through the economy, P is the price of an item, and Q is the quantity of items available in the marketplace. If M rises, then mathematically either the prices (P) must rise, or the amount of goods (Q) must rise, or the velocity of spending (V) must go down. If the money supply increases, and the amount of goods and the velocity of spending stay the same, prices will go up.

In general, inflation hurts people. When pricers rise, people can't buy as many things with their money. People on a fixed income (an income that doesn't increase when the cost of living goes up) are especially hurt, since the things they need to survive have increased in price, but their incomes don't increase. Businesses are hurt, since they can't invest as much in the business, and it's difficult to plan for the future if you don't know what the value of the dollar will be.

Some people are helped, however, and those people helped