1
$\begingroup$

Does inflation rate during the years comes from the the proportional difference of current amount of currency and amount of currency 1 year ago.

I mean lets suppose in 2000 there were 1 million dollars in flow and in 2001 100k were added into the flow, so the inflation rate is 11%?

$\endgroup$
  • $\begingroup$ Following policies may affect the inflation too, e.g. if interest rates increase a few percent of the extra money supplies, it may "curb" the liquidity of the money available, hence, reduce the inflation rates. If nothing is done, then money supplies will be the direct causation for inflation. $\endgroup$ – mootmoot Dec 12 '16 at 11:16
2
$\begingroup$

The growth of the amount of money in the economy is just one factor that can affect inflation. Other factors include:

  • changes in a nations productivity

  • changes in the exchange rate with other countries

  • changes in the velocity of money

  • changes in what fraction of financial exchanges are counted in inflation incidences

Given all these additional factors, its no surprise to find that in the short term the money supply does not correlate brilliantly with inflation... but in the long term the correlation is definitely there - i.e. if the money supply grows by a factor of ten over many years, then prices would probably grow by a similar factor. Milton Friedman won his Nobel prize for his work highlighting the long term correlation.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.