With the accession of Russia to the category of countries with a market economy, the concept of "inflation" has become a part of the vocabulary not only of economists, but also of citizens of completely different professions. But despite the fact that more than twenty years have passed since the appearance of this concept in everyday life, many still cannot give its exact definition.
Instructions
Step 1
Inflation is, in a broad sense, the process of increasing prices and, consequently, decreasing the value of money.
Step 2
The process of inflation in history appeared quite a long time ago as an inevitable consequence of the transition from a subsistence economy to commodity-money relations. One of the most striking examples of inflation in history was the so-called "price revolution" that arose after the era of the great geographical discoveries. A large amount of gold was brought to European countries, which led to its reduction in price and, consequently, to an increase in prices. This coincided with an increase in the needs of the upper class, as a result of which the main burden fell on the lower strata of the population - peasants and poor townspeople. Subsequently, these inflationary processes became an indirect cause of the already political revolutions in England and France.
Step 3
What causes the inflation process? The reasons can be very different, and often they are associated with the activities of the state as the main economic regulator. For example, a source of inflation that has often been encountered in history is the issue of additional money supply, which is not backed by either a gold reserve or economic growth. A striking modern example of such a process is Zimbabwe, where, as a result of the erroneous economic strategy of the head of state, inflation began to reach several thousand percent a year and led to an almost complete depreciation and withdrawal from circulation of the local currency.
Step 4
Non-governmental organizations can also become the cause of inflation. For example, banks that issue too many loans, or monopoly companies that increase prices uncontrollably.
Step 5
Objective processes that do not depend on specific individuals can also cause inflation, for example, a sharp economic recession while maintaining the same amount of money in circulation or a powerful natural disaster that has brought great economic harm. War can also provoke a process, as exemplified by Germany after the First World War. Then inflation rose to such an extent that employers began to pay employees a salary twice a day, otherwise the earned in the morning depreciated in the evening.
Step 6
However, inflation is not always a bad thing for the economy. If it is kept within certain limits - no more than 5-10% - it will not interfere with economic growth, on the contrary, it will contribute to it. But an increase in this level threatens with serious risks for both private companies and the state. A currency with such indicators is unstable, and, therefore, it will be less used in international circulation.
Step 7
How is inflation determined? There are various statistical methods for this, but usually they are based on the assessment of the value of the same goods at different points in time.
