How does inflation and interest work?

Question

I’ve heard that interest is when someone borrows your money they pay back extra for borrowing it. is this true?

In: Economics

Answer 1

Correct, interest is essentially the fee you pay for borrowing someone else’s money. In general, the amount of interest you pay for borrowing money is directly correlated to the amount of money you borrow; more money borrowed, more interest you pay.

Inflation is the tendency of things to get more expensive over time. The soda from the vending machine that costs a $1.25 that used to be a dollar several years ago is an example of inflation. On a very basic level, inflation occurs when the supply of money in the economy increases relative to the supply and demand of goods and services.