# Tag Info

## Hot answers tagged inflation

42

This wouldn't work - for the money to have any value abroad, it has to find its way back to the source country. Consider an example; the President of Ruritania wants a Swiss watch. He prints a thousand Ruritanian dingbats and sends them to his ambassador in Bern with the instruction to buy him a watch. However, the Swiss watch-maker doesn't want to be paid ...

37

In order for one country to spend in another, it needs to exchange its currency for the currency of the other nation. This is done through something called the foreign exchange market. Like most markets however, the laws of supply and demand apply here too. If a country suddenly starts printing a lot of money, the actual value of its money in the foreign ...

25

The optimal level of inflation is very debated with unclear answers. There are many reasons, and a great answer would be very long. It should also distinguish between expected inflation and surprises. I'm not going to do any of this, but giving you three reasons for a desirable positive level of inflation. This list is of course incomplete, also there are ...

23

The CPI stands for a Consumer Price Index. As in the price of things that are consumed (at a particular moment in time). Real estate prices are not the price of something consumed because they contain the value of current housing consumption but also the capitalized value of future housing consumption. As such, including house prices would make the CPI a ...

23

Inflation is measured against a basket of goods. It's a symptom of what's going on in markets. Some products go up in price over time. Some go down in time. Some stay the same price, but change their specification. So it's looking down the wrong end of the microscope, to ask why inflation hasn't affected car prices. Car prices are part of inflation. Changes ...

17

The primary source of the recent ruble collapse has almost certainly been the falling international oil price, aggravated by some other features of Russian politics and its economy. Petroleum products account for over half of Russia's export revenue, and most remaining export revenue comes from other commodities, whose output it cannot easily adjust. When ...

15

FooBar is quite right that unless you expect GDP growth to stop, fixed nominal supply currencies will lead to deflation. A moderate degree of currency inflation serves a number of useful functions in the economy. The most obvious are: It induces people to spend their money before it loses its value. In a deflationary environment there is an incentive to ...

15

You also didn't look at car prices in general but rather just the Toyota Camry. For example a 2001 BMW M3 was ~\$46,000 while a 2018 BMW M3 is ~\$66,000. Most cars have increased in price over the last 20 years, but some manufacturers will always have a cheap car in their lineup .

15

In the Stack Exchange reputation "economy", we can think of the reputation points as "money". And the "goods" are: Downvotes — cost 1 point each. Various privileges — zero cost, but unlocked only when the user reaches various thresholds. To my knowledge, these prices (1-point cost of each downvote and privilege thresholds) have never changed. And so, there ...

12

"Worth less" than before - yes, that's exactly what inflation does. "Worthless" - not quite. No percentage-based reduction in value can make something worth 0, but there are extreme examples from history of times inflation has spiralled so far out of control ("hyperinflation"), money became worth less than the paper it was printed on, and life savings ...

11

It is a fallacy to conclude that a steady number of coins will give you no change on the monetary value (inflation/deflation). The classical quantity theory of money can be used as a first-order approximation here: $MV = PY$ where $M$ is money, $V$ is the velocity of money, $P$ is the price level and $Y$ is the quantity of real goods. The equation says ...

11

Most manufactured products are sold domestically, but even so a strong dollar will (usually) cause a decline in sales and profitability of US manufacturers. The reason for this is that a strong dollar makes foreign products relatively cheaper, not just manufactured products, but all products. Therefore it becomes cheaper for person to buy, say a foreign-made ...

10

It all depends on what you mean by inflation and by money supply. Technical questions and answers need specific definitions, otherwise everyone ends up talking at cross-purposes. Is it possible to have an increase in general price levels without any changes to the amount of money in circulation? Yes: if the velocity of circulation of money increases, and ...

10

The figures you question are from Hanke and Kwok (2009). According to Hanke and Kwok (2009), yes. A stock (Old Mutual) was listed on both the London Stock Exchange (in GBP) and the Zimbabwe Stock Exchange (in Zimbabwe dollars). Under the assumptions of price arbitrage and purchasing power parity, one can infer Zimbabwe's inflation rate. I haven't carefully ...

9

The answer by nominally rigid very correctly hints at oil prices as one of the major causes. I'd add more details and numbers to this point. A slightly longer version is available here. 1. Russian corporations borrowed in foreign currency when external debt was cheaper than domestic debt Paul Krugman pointed at the PPP vs exchange rate changes. I've made a ...

9

For Quantitative Easing to happen, a central bank needs to expand its balance sheet by, more or less, "printing money" from scratch. Quantitative Easing is a difficult policy in that you want to encourage inflation to force investment, but at the same time you need to control that inflation. For this reason QE should be used only when central banks believe ...

9

Money is produced at zero social cost but held at a positive private cost (because to hold money you must forgo holding other assets). Therefore there is a positive externality from holding money, which means that the usual arguments for subsidizing it apply. This makes the optimal rate of inflation negative (because inflation is a tax on holding money). ...

9

Specifically treating car prices, well, the prices are determined globally and not necessarily in dollars In the last 20 years: Car manufacturers move factories across borders to save costs, China and India have become major market player both as major manufacturers and as a major consumers As a result of these causes, an additional major impact was added,...

9

No, there is no inflation. Inflation is caused by a relative increase in the amount of currency, relative to the amount of scarce goods and services available. As you note, there is a continuous increase in the amount of "currency" here - reputation. However, reputation is not spent on scarce goods and services. There is no meaningful limit on the number ...

8

The problematic part of the statement, is the "because of other reasons not important here" part . In other words: "ignore general equilibrium" -which is an unacceptable statement to make when discussing government policy and actions. Consider the naive quantity theory of money: $$PQ = VM \tag{1}$$ $P$ is the price level, $Q$ is output produced (measured ...

8

Why doesn't the government create money, spend it for free without interest, and recollect it with taxes, you ask. Well, it does. That's exactly what public investment & spending, and the taxation system, do. The government creates money, puts it out into the economy, and collects it back through taxation and other payments. If it does that while ...

8

Yes, there is inflation. StackExchange was created in 2008. Anybody who had 5,000 (arbitrary value) reputation points in 2009 would have been perceived as an outstanding member. Now, having accumulated 5,000 points in ten years of participation on a much expanded site looks less impressive. Thus, achieved respect per reputation point has decreased. The ...

7

The other answers are correct in respect of what would happen if the money supply of a currency was kept constant, however there is nothing in bitcoins to ensure that money supply will stay fixed This is such a common misconception so I'll repeat it. Bitcoins limit the money base, but that does not limit the money supply. The money supply is the money ...

7

The general way people figured the Phillips curve worked was that a shock in aggregate demand or fiscal stimulus would cause labor demand to increase as government spending generated growth, which makes labor more scarce and causes firms to compete for workers by raising nominal wages. Wage costs then rise, and the firm passes on some of the cost to the ...

6

Because money is really just arbitrary numbers, and those numbers only really have any meaning in relation to the other numbers in the set. For example: Average salary is \$50,000 and a entry-level car costs \$10,000. If the price drops by \\$5,000, it's well known that sales will go up, ceteris paribus. But what we increased all prices and all wages by a ...

6

The answer is very clear when you look at Russia's monetary statistics. The Central Bank of the Russian Federation has a very good site, and you can see them here: Russian Money Supply (M2) or courtesy of the St. Louis Federal Reserve: They provide the annual expansion rate which is nice. Historically, Russia's money supply has always been an extreme ...

6

Macro regressions, especially annual ones, have in general two flaws: They have small sample problems and They have no proper identification In order to circumvent problem #1, people often assume that the DGP process behind different countries are the same, increasing observations from perhaps 60 to 600. In order to attack #2, many people add timing ...

6

In the ECB's press conference of October 22, Draghi and his vice-president responded to the question of why the ECB is fighting low inflation so fiercely. Their answer provides a nice overview of why a low level of inflation is desired, and therefore should answer your question. The following were their main arguments: low deflation is to be avoided ...

6

Yes it can. If debt originates from the banking system, then it potentially has a side effect of money creation. Whether or not money is actually created when a bank loan is made depends on the banking system's regulatory framework, and the lending policies of its banks, and these can vary widely. However if there is net excess of bank lending over bank ...

6

Its important to keep in mind that the exchange rate is a "price for currency" and just like any other price it is determined by supply and demand. The main question now is what determines supply and demand for currency? There are two main models that tell us how exchange rates behave based on the two main forces driving demand (and supply) for currency. ...

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