i re-read a confusing topic in economics "inflation"
as i went through the causes and effects of inflation
i discovered that what d textbook was telling me was "having too much money and less goods in circulation will cause inflation

does that mean it is better to be poor as far as economics are concerned, have money that will be enough to take care of u and ur family without injections and increment of income?

i started thinking of inflation in nig and started guessing d reason behind it and d solution to it{that is if it's possible to solve it}
i talked to somebody abt it and d person said d reason for inflation in nig is too much and that it probably can never be solved
is that true?

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4]

Inflation can have positive and negative effects on an economy. Negative effects of inflation include: loss in stability in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions,[5] and debt relief by reducing the real level of debt.

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[6] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.[7][8]

Today, most mainstream economists favor a low steady rate of inflation.[9] Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy.[10] The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.[11]



Wikipedia

@Poster,
Wikipedia is your answer.

Wow, I can brightly remember.

Mr. Olorundare defined Inflation as: Persistent rise in price of Goods and services

in my own opinion, i think that what the text book means by inflation is "to much money chasing view goods" is that your real income which is income minus tax will not be able to buy you the things it use to buy you before, for instance if you use to buy 3cloths for say N10,000:00 will only be able to buy 2 depending on the rate of inflation prevailing in the country at that time.

it has negative effect on wokers, businesses,investors even the Economy because of it devalue the currency.

inflation make a rich person poor if not properly checked.

Why is my post not coming up?

I will try to do this is again.

What is Inflation?

Inflation is the upward movement and or rise in the price of goods and services in an economy. Inflation is expressed as an annual percentage figure increase, meaning that for every dollar spent, it will buy little amount of goods and services. Inflation has several determinants; however, price is the number one determinant for inflation. A hypothetical example would be,  in 2007, the price for a piece of gum was $1.99, as inflation rose significantly through the year  and the following year in 2008 assuming  a 3% increase, there would be an increase in price of $0.06c (3% x $1.99), meaning that the price of the same gum would be $2.05; ($1.99 +$0.06) = $2.05. With this example, you can clearly see that the price has reduced you purchasing power (the dollar value of what your money can buy for real goods). When this happens, from a consumer perspective, demand and supply of real goods and services are affected.

From demand perspective, don’t forget the two things that create demand; the willingness to buy and the purchasing power (dollar – money).  When the price was $1.99, you are willing to purchase a piece of gum, but when the price rose, you are more reluctant to buy, and also there is less purchasing power, meaning that you will end up not purchasing the product. This means with when consumers don’t buy, there is less demand for the product “of the same value” and this will ultimately affect supply.  Using the same scenario, supply would be affected; less productions of goods, therefore less supply to the market and that means there would be layoffs because companies are producing less.  The layoffs will bring a rise in unemployment which is our second determinant.

To cut the long story short, the rate of inflation solely depends on money demand and supply. When the dollar supply is in excess, that will result in the devalue of the dollar currency. Remember that there are factors that results in inflation (macro), and there are factors that are influenced by inflation (micro) which is what I explained.

Please I encourage people to stop using Wikipedia as a source, it has been proven not be be trusted.

Yes I remember this part:
Borrowers gain, lenders lose. Reason is simple, the value of money has gone down. The opposite is deflation where the reverse would happen.

A good example is when our parents' salaries was just N400.00, now you have graduates collecting N150,000.00. The actual value of the later and the former might just be same but check out the % increase.

Imagine you took a loan of N5000.00 then, it would be much more easier to pay back now. Thats why inflation is factored in when checking real cost of funds.

chk the dictionary or economic txt book

nickybayo,
Did you get my original post, i posted under the name davidif. I would repost it.


Just imagine a country that produces only 10 goods, and in that country, there is only 10 naira floating around. What does that mean? it means that one good is cost 1 naira in this economy.

Now imagine another scenario where the central bank decides to print more money and at the end of the day there is 1000 naira in currency floating in the economy. What does that mean? It means that you have 1000 naira chasing 10 goods in an economy meaning that one good now costs 100 naira an increase of 1000% (from 1 naira to 100 naira is a 1000% increase).

This is the problem you have with Zimbabwe right now where the fed govt. just keeps on printing money. You also had the same problem with Germany after World War I were in order to pay there debts (as a condition of surrender) for starting the war. The victors (the allies) decided to punish them and order them to pay billions in reparations. They had no choice but to start printing money. The situation with Germany then and Zimbabwe at present is called hyper-inflation (that one mean say there own don pass ordinary inflation he he ). In the USA right now, the govt is printing more money as a way of "injecting liquidity" into the system mostly as a way of stopping deflation (which is way worse than inflation), they believe that inflation can be easily controlled. They have forgotten the lesson from the early 70's where Richard Nixon was printing money in order to combat the oil glut. This policies led to the massive inflation of the late 70's and caused stagflation (a recession plus inflation) which made Jimmy Carter lose re-election.

I hope this answers your question.

Topic.
Well, maybe these could also sarisfy ya urge,

inflation exists only in Nigeria and can be simply defined as the rising increment of Garri and Salt which is generaly accepted and believed to be the urchin's daily meal and diet. Inflation could also include the scarcity of common commodity in the Nigerian Market (only), examples are; Sugar, Kulikuli, Elubo, Maggi and the likes. . . .

What an Inflation!!

It means the Economic rate has increased.

Inflation is a world-wide phenomenon, the most serious
in history being the hyper-inflation of Germany in 1930's

Inflation may be defined as a sustained rise in the general
level of prices.It is characterised by prevalence of increase
in prices generally, not just increase in the prices of one or few
commodities and this increase must be sustained over time.

It is possible to have a fluctuation in prices of certain commodities,
like agricultural commodities,as a result of shortfall in supply due
to seasonal factors.This cannot be counted as inflation.One general
way by which people notice inflation is that once triggered off,the
price increase tend to be general,affecting practically all prices and
it is continous!

There are two major thories of inflation.

The Keynesians believe that
excessive investment ang government expenditure will cause
inflation,when higher in aggregate than saving. That is when
injection into the economy is more than the withdrawal.

The Monetarist, on the other hand believe that inflation
is solely monetary phenomenon arising from excessive
growth of money supply.

In conclusion,the major enemy of any economy
is nothing but STAGFLATION! More of this will
be discusses in our about to be launched
site at http://www.naijaeconomists.com

@ouland
, a miatake, not discuses but discussed!
pardon me.

Persistent increase in price of goods and services. if not satisfied, contact: mamma.com

Gabry:

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.[1] When the price level rises, each unit of currency buys fewer goods and services; consequently, inflation is also an erosion in the purchasing power of money – a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4]

Inflation can have positive and negative effects on an economy. Negative effects of inflation include: loss in stability in the real value of money and other monetary items over time; uncertainty about future inflation may discourage investment and saving, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include a mitigation of economic recessions,[5] and debt relief by reducing the real level of debt.

Economists generally agree that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.[6] Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities, as well as to growth in the money supply. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.[7][8]

Today, most mainstream economists favor a low steady rate of inflation.[9] Low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduce the risk that a liquidity trap prevents monetary policy from stabilizing the economy.[10] The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.[11]



Wikipedia

Gbam!

thank you very much for your replies

now i have the correct meaning, causes and effects of inflation

Inflation is when a lot of money is chasing fewer and fewer goods and service over a period of time

It's when you go to the market and realise your wallet ain't as heavy as you thought it was

On a broader note, inflation is linked to a lot of economic indicators i.e.

1. Interest rate: Apart from being an economic tool to stimulate or slow down the economy (prevent inflation), the interest rate is also meant to compensate inflationary differences. i.e. When you deposit money with the bank, you are not using it for any investment purposes, and over time, the chances that the deposited funds  will buy you same value of good and services at a later date is remote. In a normal economy, the interest rates paid on your deposit is to compensate this difference (inflation)

2. Balance of payment: In an economy where inflation is high (un-usually high funds chasing few available goods and service) this leads to a price increase spiral, making locally produced goods and service very expensive and less competitive to goods and services of countries where inflation is lower. This will push foreign investors to go for the less expensive goods and services of your competitors. This way, there will be less foreign funds flowing into your economy and this will increase pressure on your currency.

3. Unemployment: In an economy where inflation is high, investors tend to postpone any form of capital investment due to the following reasons: Interest rates are high and makes borrowing more expensive. Prices of raw materials are high. By postponing investments, this reduces the demand for goods and  services, eventually impacting the employment market.

4. Pension: In controlled and regulated economies, the pension paid out to pensioners are indexed yearly inline with the rate of inflation, this is done to compensate for the loss of  or otherwise of purchasing power (gap) that might arise as a result of the shift in inflation rates over time. This is also taking into account when estimating the probable premium that we are required to pay for our pension premium.
I hope this will shed more light into inflation, it’s a different way of looking at inflation and it links with other economy indicators / tools.

Pls, can anybody help me out here.

Is it possible for me to buy a piece of land, and seek the bank's to help me finance the building project, and service the loan, once the house start putting money into my pocket.

Pls, i need you to be sincere in your response, i will be hopping to get a good one

Thanks

a situation in country's economy where prices and wages keep forcing other to increse.

chat with me isaac.clean@yahoo!

waleluv1:

Pls, can anybody help me out here.

Is it possible for me to buy a piece of land, and seek the bank's to help me finance the building project, and service the loan, once the house start putting money into my pocket.

Pls, i need you to be sincere in your response, i will be hopping to get a good one

Thanks

I suggest you open a seperate thread for this because on this thread, we are talking about inflation and not loans from the bank.

However, based on my understanding, of course you can get a loan to buy a land from the bank provided you check how much is the interest rates and also in how many years do you have to pay the loan. Ensure you calculate your money if you are able to pay monthly to the bank after deducting your bills (u know like phone bills, house bills, car bills, and etc etc).

i am a trained economist, but I am into IT now by inclination. I cant still remember what my professor told me that too much money in circulation cause inflation

take this scenerio
say a country produce ten bags of rice in a year, then money minted have correspond with rice production,if there is a fall in production the following year to eight bags of rice then money minted have to be cut by the shortage say 20 percent , else there will be inflation. this is based on the assumptions that rice produnction is sole produnction for that country and hence determines money production.

in the case of nigeria , we are faced with imported inflation as we 80 percent rely on imported good

I am happpy i can still remember some economic theories. I thought bits and bytes have overwritten them !!

Unconditioal rise in the price of good and services.