Inflation

Generations before us often mention how goods were bought for as little as a few cents, which nowadays it is worth nothing, but before, it was valued much more. We often do not understand the idea of inflation and the effects that it has on our economy or business. But it may be detrimental due to the various reasons that cause it.

Inflation itself is the increased rate in prices of goods and services in an economy over a set time period. When the price of goods increases the unit of currency is less able to buy items, giving it less purchasing power than before. On the other hand, deflation is when goods decrease in price because there are more goods available than money circulating. But even though the price of goods decreasing may sound like a positive thing for the economy, it is known to increase the likelihood of an economic depression.

The reasons for inflation include 3 main reasons. Number one, governments print more money to stimulate the economy and create more jobs. The second reason is cost-push inflation which is when the cost of maintaining business rises and more money is needed to keep it afloat. This may happen due to an increase in the cost of materials, higher wages, higher land rents, or many other reasons affecting the overall economy. The third reason for inflation can be due to demand-pull inflation; this occurs when the demand for goods increases rapidly but the supply does not increase at the same rate. This usually happens when many people are having a lot of extra money caused by better-paying jobs or taxes being lowered.

Because of these reasons, there needs to be regulated in order to avoid excessive inflation or deflation. The usual range is around 3% every year which becomes significant over a long period of time. Because of this, the government and the central bank work together to prevent this for the good of both the country and the individuals.

QUIZ

What type of spender are you?

1.Do you buy things without really thinking about it?

1. Never

2. Sometimes

3. Always

2.Do you use shopping as a coping mechanism for your emotions?

1. Never

2. Sometimes

3. Always

3.You try to save money when shopping

1. Never

2. Sometimes

3. Always

4. You tend to buy unnecessary items

1. Never

2. Sometimes

3. Always

5. Shopping gives you excitement or it brings you peace

1. Never

2. Sometimes

3. Always

6. You only go shopping for the essentials

1. Never

2. Sometimes

3. Always

Points:

Never-2 points

Sometimes-4 points

Always-6 points

Results:

(12-20) You are a controlled spender, you only spend money when it is absolutely necessary

(20-28) You are an emotional spender, you try to shop consciously but sometimes use it as a coping mechanism

(28-36) You are an impulsive spender, if you see something you buy it with no second thoughts.