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Know These Causes and Effects of Inflation

Causes And Effects Of Inflation

With the United States continuing to try to come to grips with the recession, many people are looking at ways that they can get the most bang for their buck, stretching every dollar as far as they can. As is the nature of inflation, though, with higher prices comes a reduction in the value of domestic monies.

Of course, some people may look at the need to explain causes of inflation and jump to the dictionary explanation as a means of oversimplification, arguing that price increases and having too much money printed are the culprits. Other causes of inflation are derived from the nature of wages and the budgeting requirements with which employers may be faced.

Especially in the wake of the recession, workers may (cautiously) want to make a bid for a raise to accommodate the rising costs of everyday living. Unfortunately, with so many companies scaling back these days, it is just as likely that the individual gets let go from his or her job than gets a bonus or a promotion. In the event a wage increase (notably that of the minimum wage) is indeed realized, though, consumers may be met with stiffer fees for consumer goods and services, and with other businesses following suit, a cycle of inflation may be perpetuated.

As for the effects of inflation, in most instances the news is not positive. For one, at a basic level rising inflation rates will make it hard for people and businesses to accurately gauge in what direction they should move. With the latter in particular, businesses might even have to allocate resources away from serving customers in the interest of trying to right the ship, as they say, and staying on top of one's finances. Meanwhile, individuals may "hoard" commodities in anticipation of high prices, creating a yet more desperate situation for many with these products' unavailability on the market.

Then again, inflation may have its positive effects as well. Returning to the notion of the current hour as a recession, although this economic state may be one of the causes of inflation, entering new currency into the financial markets may actually reverse trends. In fact, as far as many economists are concerned, a small, steady amount of inflation per year (some two to three percent) is healthy for the nation's economy.

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