Why if I have $100 right now, 10 years later that same $100 will have less purchasing power? Why can’t our money retain its value over time, I’ve earned it but why does the value of my time and effort go down over time?
In: 5591
A lot of the responses here seem to think that inflation is created through an intentional process in which government prints more money, hence decreasing the value of the dollar. This is wrong. The printing of currency only accounts for about 4% of the money actually out there. Inflation is actually caused by increases in prices on goods and services, and then yes governments react by increasing the money supply (not just by printing currency, but by making large digital currency deposits into banks). If the money supply wasn’t increased, then the value of the dollar would begin to rise as there wouldn’t be enough money to match demand for purchases (exchange of money). Inflation itself is being controlled by price indices. Prices can’t and don’t stay fixed because of the concept of scarcity. As certain goods become more or less scarce, their prices fluctuate. The kind of inflation we’ve been seeing this last couple of years is largely due to monetary policies that actually attempted to keep inflation lower than the target of about 2% for roughly the last decade, coupled with the largest shake-up in production capabilities worldwide that we’ve seen in about a hundred years (due to COVID). This led to an inability of supply to match demand, which as we all know from basic economics causes price increases.
Latest Answers