Compare and contrast the inflation rate and the changes in prices that occur within markets. Including borrowers and savers, which groups benefit and which lose as a consequence of inflation? Provide an example of a situation in which there are too many dollars chasing too few goods.
What is the difference between inflation and a price increase in a particular market?
Inflation is the increase in the value of all goods and services at larger prospect. Price rise is the increase in the price of a good
The Fed wants to keep CPI low while they are willing to let asset prices inflate. The government is a big fan of inflation as it can do more deficit spending which they can’t get enough of.
The past few years the wealthy have been profiting from great increases in net worth while the poor and middleclass fell behind(as only the wealthy own assests). Often paired with this comes social unrest as we already experience.
By now the fed is losing control with asset price inflation but also with the CPI, they are so far behind the curve on rate hikes, probably because they are trapped in this debt bubble.
Will they let it pop? or will they let inflation run hot for the next few years which leads to a lower debt burden because even tho the debt doesn’t shrink, devalueing the dollar makes the debt less a part of GDP because people will earn more and so pay more taxes(over the extra hidden tax which is inflation).
So as inflation is running hot on certain things, desirable goods and things that cant increase in supply or can barely increase in supply shot up in price inflation is a vector.
is inflation CPI? or do i wanna be wealthy? do i wanna buy exclusive art, stock or real estate in a big city?
if so I have to beat the hurdle rate I have to increase my dollar net worth by about 20% to 30% because that is what the price change in these goods is!
if we would have an absolute scarce monetary fungable digital asset we could turn this the other way, because now everything around us will get cheaper when our productivity increases.
it will increase in worth as a fixed amount of real money will chase an increasing supply of goods!
save your self from working exponentially harder for an exponentially faster devaluing currency!
In an inflationary environment, prices of everything from food to assets such as real estate and stocks tend to rise. This bodes well for people who own assets but negatively affect those who do not. Additionally, borrowers do well because the value of their outstanding debts are actually less valuable after inflation because the value of the currency has gone down. Lenders typically do not like higher than normal inflation because their loans are going to be paid back in a currency that is less valuable than when they issued the loan originally. Some possible negative side effects include: widened wealth inequality gap, and runaway inflation.
The inflation rate is the rate of a country’s economic level of growing prices for goods and services. Most obviously, it raises the expense of life, eroding a person’s purchasing power.
In terms of who benefits or loses as a consequence of inflation, I say both parties can benefit and/or lose.
Inflation, by definition, causes the value of a currency to fall over time. this means that cash at hand today is more valuable than cash tomorrow. Hence, if the debtor owed money before the inflation, this favors the debtor by allowing them to repay lenders with money worth lesser than it was when they borrowed it.
For the lender, inflation will favor them for new contracts over older ones. Because of the rising cost of living, more people will seek credit for a variety of reasons, significantly if their income has not improved in that period. This will attract new clients to the lenders. Furthermore, increasing prices as a result of inflation will earn the lender more interest in the long term.