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
Interest is the value of having something now, rather than later.
Say you lend someone $100. You no longer have that $100 to spend. Giving up the ability to spend that $100 now is worth something. You would articulate that by specifying a percentage of the $100 which you think is worth the loss of $100 for that period of time, and agreeing with the lendee that they will not only return your $100, but pay you the interest in return for them being able to spend that $100 now instead of you.
Because no one wants to lend money without getting something in return, interest is rarely negative.
Investments make profit when they earn more interest than other investments. The relative performance determines if you come out ahead, or behind.
Inflation is the incremental price increase of everything as market players try to out perform each other.
It works well, until it doesn’t.
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