Inflation and Hyperinflation
(Short Disclaimer: You need to know some
knowledge of Macroeconomics, such as the
definition of Macroeconomics and what Real
GDP is)
Economic Definition:
Inflation is the general and sustained increase in the
prices of goods and services over time, which results in a
decline in the purchasing power of money
Simply explained:
Each unit of currency buys fewer goods and services than
before.
How does it occur?
Inflation mostly occurs when there is too much demand. What
I mean by that is when too many people want to buy a product,
the seller increases the prices to increase profit. This then
decreases the value of Money.
Inflation occurs regularly in the World of Macroeconomics and is
needed for development of the Economy. An easy way to
explain this is with
the business cycle:
, This is the Business Cycle; it shows the development of the
Real GDP over time. ( https://www.stlouisfed.org/publications/page-one-
economics/2023/03/01/all-about-the-business-cycle-where-do-recessions-come-
from) Source
The line that goes through the graph is the full employment
line. It shows what will happen if all resources are used
efficiently with full employment. Now as I said before our
economy needs to develop, but the simple reason why this
couldn’t work in our Economy is because there wouldn’t be any
innovation. Think about it, when everyone is working at already
existing company’s there is no room for new Company’s, who
may become competitors. This leads to the already existing
company’s not needing to be innovative, to make more money,
because they don’t have any competitors.
When the Graph goes up, there is an expansion or
recovery, this often leads to inflation. When the graph
goes down, there is a recession. This is controlled by the
central bank. They control the money flow and with that the
course of the business cycle.
So, inflation and recession are needed to have a realistic
economy.
(Short Disclaimer: You need to know some
knowledge of Macroeconomics, such as the
definition of Macroeconomics and what Real
GDP is)
Economic Definition:
Inflation is the general and sustained increase in the
prices of goods and services over time, which results in a
decline in the purchasing power of money
Simply explained:
Each unit of currency buys fewer goods and services than
before.
How does it occur?
Inflation mostly occurs when there is too much demand. What
I mean by that is when too many people want to buy a product,
the seller increases the prices to increase profit. This then
decreases the value of Money.
Inflation occurs regularly in the World of Macroeconomics and is
needed for development of the Economy. An easy way to
explain this is with
the business cycle:
, This is the Business Cycle; it shows the development of the
Real GDP over time. ( https://www.stlouisfed.org/publications/page-one-
economics/2023/03/01/all-about-the-business-cycle-where-do-recessions-come-
from) Source
The line that goes through the graph is the full employment
line. It shows what will happen if all resources are used
efficiently with full employment. Now as I said before our
economy needs to develop, but the simple reason why this
couldn’t work in our Economy is because there wouldn’t be any
innovation. Think about it, when everyone is working at already
existing company’s there is no room for new Company’s, who
may become competitors. This leads to the already existing
company’s not needing to be innovative, to make more money,
because they don’t have any competitors.
When the Graph goes up, there is an expansion or
recovery, this often leads to inflation. When the graph
goes down, there is a recession. This is controlled by the
central bank. They control the money flow and with that the
course of the business cycle.
So, inflation and recession are needed to have a realistic
economy.
