Inflation, is the simple answer. But what causes this? Why couldn’t society just keep on keeping on with prices? Examples, a $0.25 for a candy bar, $0.75 for a fast food burger, $30k for a home etc. It worked then, so why not now, why not just agree to lower the prices of everything?
In: Economics
You really want to buy a new bedroom set. Today it’s $1,000.
What would you do if you thought the price was going to be $900 in a week or two?
What would you do if you thought he price was going to be $1,100 in a week or two?
The first scenario leads to a lot of people hoarding and not spending their money. If people don’t spend money, then companies don’t make money. If companies don’t make money, they are forced to lay-off workers and/or go out of business. This leads to even more people not spending money and the negative feedback loop continues.
In the second scenario, you are going to spend your money now while it’s worth more. More money spent means companies making more money, leads to hiring more workers and/or reinvesting the extra income back into growing their company.
This is why a small amount of inflation is a good thing to have. The US targets to have an inflation rate of about 2.0%
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