Inflation intro

Econ

Inflation

increase in overall price levels

What causes inflation?

too much money in circulation (devalues each individual dollar)

Deflation

decrease in overall price levels

Money supply

Controlled by the FED, fixed quantity in circulation

Monetary Equilibrium: Short run

interest rates are biggest influence in balancing money

Monetary Equilibrium: Long Run Differences 

Prices naturally adjust to equilibrium level of money supplied and demanded “It just does”  

Is inflation always bad?

No. People who have borrowed money “win” and Loaners “lose”. (debtors pay back an og amount of debt with less valuable dollars)

People who save money

Feds actions that will be taken to lower inflation (raise RR/DR, sell bonds) lead to higher nominal IR’s for saving accounts