Inflation

Inflation
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  • Why are these pants $20? Last week they were $10.
  • $20
  • Was $30 Now $10
  • It's because of inflation.
  • Inflation is the rising general level of prices and it reduces the "purchasing power" of money.
  • $20
  • Inflation? What is that?
  • Was $30 Now $10
  • Correct. That's called Demand-Pull Inflation, which drives prices up.
  • Is it because people are demanding these pants?
  • $20
  • Was $30 Now $10
  • Higher production costs increase the prices.
  • So then that would cause a Cost-Push inflation. 
  • $20
  • Was $30 Now $10
  • That causes a negative supply shock, which increases the costs of production and forces producers to increase prices.
  • What if this store didn't have an extra supply on these pants? What happens next?
  • $20
  • Was $30 Now $10
  • Because the value of that money would decrease. Also, governments that keep printing money to pay debts end up with Hyperinflation.  
  • Then why doesn't the government print more money?
  • Oh okay, thanks for explaining that. I will come back next week for the pants. Thank you!
  • $20
  • Was $30 Now $10
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