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Transcript of Inflation
Inflation is an increase in the general price level of goods. People are able to calculate inflation by taking a sample amount of goods or a "basket of goods" and find the average of those goods. And then they will compare the average to the averages of goods in the past and it will give them the rate of inflation for that country.
How is Inflation Used as an Economic Indicator?
Inflation Throughout History
Inflation Throughout History
In the 10th century China had introduced the worlds first paper money the Jiaozi, although this had an exchange to silk, gold and silver but the practice of conversion was not allowed, also the government had added different notes and the service charge to exchange old bills to new bills is 3%. Although they had introduced new notes the old notes were never retired which led to inflation as there were too many different notes the government tried to fix the problem by demanding all the old notes with taxes but the damage had been done and the notes fell out of favor. In 1260 The Yuan Dynasty also implemented their own paper note the Chao. All went well with the Chao until The Yuan Dynasty had problems with their power and began to removed restrictions of creating the Chao which led to hyperinflation and in 1455 in oder to fix the inflation they had switched the governing power
Inflation is used as an economic indicator to tell how much money people have. If people have a lot of money inflation goes up. If people have a little bit of money inflation goes down. The reason this happens is because people are bidding with their dollars so if people have more money they will be "bidding" more money to purchase something that was previously cheaper when inflation rates were high which means the economy is strong and there is lots of trade going on but if it is low that means there is not much money the economy is not as strong and there is less trade going on. However too much inflation or too little inflation can negatively effect a country. If there is too much inflation the country's exchange rate goes down if there is too little inflation that means there isnt as much money in the country which means some people may not have money which can lead to unemployment and interest rate decreasing.
if bank prints more money prices will go up. Ex. house prices
lowers consumerism, promotes unemployment, and reduces import and outport. Ex. GDP
when prices rise, there is a fall in the demand of goods and services and the consumer stops producing. Ex.unemployment
if inflation increases the exchange rate goes up
if inflation increases the interest rate goes up to lower the inflation
if inflation goes up the minimum wage will go up to survive
if inflation increases so does taxation
What other economic indicators affect this one? How?
if interest rates lowers, loans are available cheaper to buyers so inflation increases
if taxation lowers, inflation increases
if minimum wage increases there will be no affect on inflation
if GDP increases so does inflation
if the currency is good inflation won't go up, but if it isn't good then inflation will go up. Ex. exchange rate
if unemployment is low than inflation is high
if house prices go up so does inflation
In the tenth century the Song Dynasty introduced a new note known as the jiaozi. This Currency had an exchange rate to Gold, Silver and Silk but the Song Dynasty began to introduce new notes and not retire the old notes leading them to have multiple currencies in one place. Also to convert the old notes to new notes you would recieve a three percent service charge and you were not allowed to trade notes for gold/silver/silk. In attempt to fix this problem the government taxed everyone for their money but the damage had already been done, their currency was worthless as inflation had made their multiple currency less scarce and also less valueable.
Another Example is the dynasty after the Song Dynasty the Yuan Dynasty had also introduced a succesful paper note, this note was succesful until the government ran into funding problems and began to print too much money leading them into inflation as they made too much money and had decreased the value of their currency