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If a company is worth, say 1,000,000 dollars and sell 1,000 shares of stock, each share is worth $1,000. (1,000,000/1,000) If the company then issues another 1,000 shares of stock and the value of the company stays the same, then each share is only worth $500 (1,000,000/2000).
The exact same thing happens when a country "creates" more money. The total value is the same, but each dollar is worth less because there are more dollars.
I am not an economist, but even I can figure this out. The only way to create more money is to create more value (i.e. mine more gold or turn a raw material into a more valuable product).
From Printing money like there is no tomorrow !
The US Dollar used to be worth an ounce of gold, When individual Banks were given permission to began printing their own money (some time around the civil war I believe, feel free to correct me on that) The value of the dollar began dropping from there.
Any time we hit a depression the Mint's start pumping out extra money, that is often given in the form of Tax breaks and Government Grants, and the value of the Dollar continues to fall. Everyone and their dog seem to want to buy gold because the price is skyrocketing; Really it's the value of you dollar in free-fall !
You have things really quite backward, unfortunately. Prior to the Civil War, specific individual banks, chartered by Congress, were the only ones empowered to print "banknotes" (hence the name!). These were "promissory notes", not currency, but could be exchanged for currency (i.e., specified weights of precious-metal coinage) on demand.
During the Civil War, Congress authorized the Treasury Department to issue notes directly, to be used as legal tender. These notes were still required to be fully backed by precious metal reserves, a requirement which persisted until the 1930s.
There is absolutely no relationship today between the price of precious metals, such as gold, and the value of any currency (except in the mind of partially educated conspiracy theorists). All major world currencies are "fiat currencies," which means that their value is determined entirely by their mutual purchasing relationships to other currencies, not to any concrete reserve.
I never said there was a direct relationship between Gold and the dollar. It was merely the most vivid example. Looking at the cost of basic staples like bread and milk you can see the same trend, even though they are getting cheaper to produce.
Sorry if i miss-worded the note on banknotes, I meant to say that is were it started, not where it took off (1930's like you said)
** If a country prints more money, and does back it up with hard currency, then why wouldn't the value of that money drop?**
I think a few others have posted something similar.
Inflation was driven by departure from a metastable (non-zero vacuum expectation value) state of a scalar field in the early universe. As the field's energy dropped into minimum at non-zero VEV, inflation turned off and transitioned to a simple linear expansion of the scale factor.
Oh, wait. You're talking about economics, not science.
Lol. I was also contemplating this question way deeply earlier and my thoughts wandered into the inflation and collapse of the universe somehow being the root origin of economic inflation, credit and debt, warm fuzzies cold pricklies, love hate, trust distrust. Soon I was into the religious and then into the science version of the religious.
No, inflation is when air goes into a pliable/stretchable piece of material(i.e. a balloon) and air is forced in.
This will increase the air pressure thus expanding and inflating the object.
Economics are just crazy...
Taken from Wiki,
The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements
So if by people you mean the "Federal Reserve", then yes.
Setting interest rates and printing more or less cash is only a small part of the equation.
Inflation is just another form of tax. when I started work as an apprentice in 1985 I could of bought one once of gold with a weeks wages. Now I have got lots more money per week but the value is less as I can only buy about .8 on an once of gold with my weekly wage. The same is true of lots of things that have a stable value , silver, petrol, property, food. Everyone wants a pay rise so the governments print more money decreasing its value.
have a look here
you can see that apart from blips caused by war, gold and inflation were very stable and low till around 1968.
This would be better suited as a forum discussion since there is no clear cut answer here.
Never the less... Cost of goods going up is part of inflation. Most often the cost of goods go up because some other cost has risen for whatever reason. It's a whole chicken and egg thing. On key factor is the price of commodities which is driven by supply and demand. Oil being one of the major commodities influencing the cost of everything and affecting inflation. Others being natural materials like metals and other fossil fuels. Other factors such as cost of living (i.e. home values, cost of food ect.) affect it. Food prices can fluctuate based on yearly weather trends. Lets not forget the role that intrest rates can play. As cost in general rise people need to earn more to pay for everything. In turn they demand higher pay which means companies may have to raise the price of their goods and services to offset the cost of the higher salaries. Or maybe companies choose to hire less people or start letting people go. As you can see it gets pretty complex and hard to fully understand much less try to control. Economist spend their whole life trying to figure it out and find the best way to manage inflation. The complexity of the issue leaves no clear cut solution to the problem so their is always a debate on the issue. How to control inflation often becomes a great dividing point between political parties cause the affects changes an have on everyone.
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