I do not understand how inflation works if my life depended on it. I understand that it’s an occurrence when you have something in excess amount (like money), thus it becomes worth less.
But why does it become worth less when we give money value? Could we not assign the same value to the same things we have in an excessive amount? Is inflation a law of sorts?
It’s so confusing to me.
In: Economics
No, inflation doesn’t have to happen. Through most of the nineteenth century, U.K. inflation hovered [around](https://monevator.com/a-history-of-uk-inflation/) zero. Having inflation around 2% or so is a choice governments make.
Other answers have covered this, but the more you have of anything the less it is worth. With money in particular, if everyone had much more money, then they’d be willing to pay more for everything, so the prices would go up. (Think about buying a house – if you had twice as much money, you’d be willing to pay a lot of it for a nice house, right? But you are competing against other buyers, so if everyone has more money, all the house prices go up.) The key bit to grok is that value isn’t assigned by someone, somewhere; it arises out of lots of people bidding against each other for the same things.
Latest Answers