| ▲ | barrkel an hour ago | |
Inflation is an increase in the cost of living. It can be caused by deficit spending. It can also be caused by supply shocks. For example, if you restrict building new housing, the price of housing will increase, both rents and house prices. If you tariff imports, a basket including those goods will rise in price to the degree those imports are not substituable. If you start a war in the Middle East, oil prices will rise, and increased energy costs can feed into lots of different things, raising prices. | ||
| ▲ | WalterBright 5 minutes ago | parent [-] | |
Sigh. It is always the result of deficit spending. Bob earns $20 every day. He buys 5 eggs $2/ea and 5 apples $2/ea every day. Now, due to supply shocks, egg prices double. He still has only $20, and so he now buys fewer eggs and fewer apples. What happens when he buys fewer apples? The price of apples goes down, due to the Law of Supply and Demand. There is no inflation. What happens when this economy is flooded with dollars? The Law of Supply and Demand again, meaning the value of each dollar drops. That means the dollar price of eggs and apples rise, as well as his wages. Oil prices rising means people have less money to spend meaning prices of other things drop. Another way to look at it is the US had zero net inflation from 1800-1914. From 1914 to today a dollar is worth 3 cents of a 1914 dollar. That isn't due to supply shocks, and there certainly were plenty of supply shocks before 1914. 1914 is when the Fed was created and empowered to print money with no backing. | ||