6 Things You Should Know About Inflation
1. Inflation is...
...the general rise in the price of goods in an economy over a period of time. Inflation is necessary in an economy but too much or too little be very bad.
2. A little bit of inflation can be a good thing.
Inflation can be a helpful thing in an economy. The government tries to keep inflation at about 2-3% each year. A little bit of inflation provides a cushion to prevent deflation. This is important because deflation can mess up the economy.
3. The value of the dollar.
As inflation increases the value of the dollar decreases. For example, a dollar from the 1950's is now only worth about $0.12. The value of the dollar is measured by its exchange rate which compares its value to other currencies.
4. Inflation can be caused by...
many things happening throughout the world. During times of war, inflation can be very high or very low. Natural disasters and many other world events can have an effect on our economy and cause inflation to increase or decrease.
If inflation gets too high, an economy can be affected very poorly. For example, in 2008, Zimbabwe hyper-inflated. A loaf of bread would cost $1.6 trillion Zimbabwe dollars. Hyper-inflation is usually caused by persistent government deficits and are often associated with war and other crises.
6. Inflation seen in history.
Inflation has been seen many times in history and has had an effect on many civilizations. For example, runaway inflation is said to be the cause of ancient Rome's fall. Starting in 1917, inflation was very high for a few years. Then it dropped into the negatives. It was most likely related to WWI.