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by wickedwillie on January 30th, 2004

wickedwillie

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What are usually the main causes of inflation?

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  • by Yoyo Head on March 1st, 2004

    Yoyo Head

    The primary cause of inflation is the growth of the money supply. That means the federal government creating money. If that happens faster than the expansion of the economy, the result is too many dollars chasing too few goods and services. Thus each dollar's purchasing power is less than before.

    There are other causes of price increases, like the way the price of oil going up and down causes fluctuations in the price of gasoline. But effects like these are smaller and temporary, and they cause both upward and downward pressure on prices. The only big and permanent cause of inflation is money growth. When the USA had a gold standard, there were price fluctuations, but the average rate of inflation over a a long time period was zero.

    The Federal Reserve System is an attempt to improve on the gold standard by putting the federal government in charge of the money supply through a central bank.

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  • by Ema cool on December 3rd, 2004

    Ema cool

    The main causes of inflation is the total demand in the economy is rising while the available goods are limited, so they are forced to raise the price. another is the cost of raw materials. if the cost of raw materials rises, the price rises too. the another is the monetary inflation. there is a change in money supply. if there are more money in circulation, certainly the price will be high.

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  • by Thom64 on October 14th, 2004

    Thom64

    The other main cause is market confidence. If nobody believes that a dollar or euro will be worth much next month or next year, you will have to pay a lot more of them for the same goods or services. For example, if general concensus was that China was about to invade Japan (hypothetically), the value of the Yen might drop precipitously. If the government of India (hypothetically) looked unstable and near collapse, the currency issued by that government would quickly lose value.

    The more uncertain the future of the currency, the lower its value. If the value does drop dramatically, the government is forced to issue more currency to keep its economy alive. This can be (and has been for some countries) a vicious feed-back loop that can cause an economy to spiral down to collapse. Confidence drops, currency value drops, more currency is issued which lowers confidence which causes more value loss...

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  • by RMI on November 21st, 2008

    RMI

    what r the major factors which have cooled the inflation rate?

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  • by Doggie S on September 19th, 2008

    Doggie S

    There are two camps that disagreed strongly on the main causes of inflation

    Monetarists - argued that money supply dominated all other factors in determining inflation

    Keynesians - argued that it is real demand that causes inflation

    But economy is such a huge subject that there is no one sure thing that causes the other.

    http://kclau.com/wealth-management/knowing-your-enemy-inflation/

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  • by Yoyo Head on January 8th, 2006

    Yoyo Head

    It's true that under a gold standard prices tend to decline over time. Prices would be stable because there is no central bank printing money, but increases in productivity make things cheaper. That's what happened historically. I should have been more specific.

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  • by machinerat on September 19th, 2008

    machinerat

    When minimum wages are increased. Suddenly everybody has more money (however little extra).

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  • by Carpediem COAT ab imo pectore on September 22nd, 2008

    Carpediem COAT ab imo pectore

    This one is a huge issue, I am unable to post a suitable answer as I would have to explain too much which would take a huge amount of space.

    Please go to the following link, it is excellent and has graphs to illustrate the readers.

    http://tutor2u.net/economics/revision-notes/a2-macro-causes-of-inflation.html

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