What is inflation and what does it mean when people say the currency in Venezuela is worthless?
In: Economics
Inflation itself is just the term to describe the worth of money decreases over time. Contrary to that we have deflation which means the value increases.
Inflation can have many reasons and is induced by the EU and US to stimulate the economy at a low rate.
This can be done by giving out new money into the economy. There is a fixed amount of value in any country and a fixed amount of money, so basically you could see how much worth something is by calculating what part it is of the economy and then taking that part of the money.
For example, the whole economy of Banania is 100 Bananas and there is a total of 2000 Banana Dollars. 1 Banana is 1/100 of the whole economy and 1/100 of 2000 Banana Dollars is 20, so one Banana is worth 20 Banana Dollars in Banania.
Now the Government decides to print 2000 more Banana Dollars. The Bana is still 1/100 of the economy, but now the Banana is worth 40 Banana Dollars. You now need double the money to buy a Banana.
In Venezuela something similar happened, in addition, inflation causes more inflation by other factors, like people wanting to spend their money now instead of waiting for it to become worth less, which makes money even less valuable since there are more buyers for the same good. These extreme cases are called Hyperinflation, they spiral out of control and can devalue money to a fraction of it’s worth in months.
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