“When I was your age, a chocolate bar cost a nickel! How can a Hershey’s cost $5?” The classic remark we all hear from our grandparents as they eventually move into how much the world has changed. Most of the time we pretend to listen while day dreaming about something else, but what if we focused on that beginning comment. Yes, the world has changed drastically in the past 50 years and perhaps at the center of all this change is money. More specifically how the value of money has changed, better known as inflation.
Now, what exactly is inflation? It’s an intricate concept which needs to be deconstructed to understand. Mr. Patton, a UA teacher, explains, “Inflation is the overall increase in the prices of items people buy. This includes everything from food to electricity to the cost of streaming services. Inflation occurs for several reasons, but in general everything gets more expensive over time due to supply and demand”.
In simplistic terms, inflation is when more currency becomes available, meaning the value of it goes down. Say, for example, a candy bar costs a nickel. Over the years, more money is available. The money is worth less because there is more of it. Technically $5 costs more than a nickel, but because there is more, the value is the same. Meaning, Hershey’s bars’ value itself stayed the same, but the money in the country became more available, meaning the manufacturer will ask for more money to keep the same value going for him in the new economic standpoint.
The main cause of inflation lies in the big question which everyone seems to ask: “Why can’t we just print more money if we’re in debt?” The more money we print, the more value of it goes down. Let’s say there are $10 dollars in the world. $1 most certainly will be worth a lot of value. But, if more money is printed, and now there are $100, that $1 will hold less value.
This becomes a problem for economies when it gets out of hand. Countries which trade with one another do so through exporting and importing. Exporting means they send their goods to another country and get paid for it; Importing means they pay and the goods get brought to their country. Currency is different in many countries. Let’s say inflation is not that evident in country #1, but is in country #2. $1 in country #1 = $10 in country #2. Now, one might think it wouldn’t be that big of an issue for country #2, because there is more money circling for them to pull out of. But let’s look at it from an individual’s perspective. If a person is paid in country #1 $100,000, then it’ll be a good wage, because each dollar holds a strong value. But, in country #2, as stated earlier, if they are also paid $100,000, it won’t be the same. If we are to compare, the economy of the first country holds more value in dollars. So, that person would be able to get their money’s worth. But, in country #2, because there is more money circling, even though they are getting paid the same amount as the former country, they will not receive the same benefits to living because their value is worth 1/10 of the first country.
Mr. Biggs, another UA teacher, simplifies this issue further. “When there is too much money in an economy (because interest rates are low and so the “cost” of borrowing money is low, too), it can cause an increase in demand, and this can also cause inflation. This is the reason why governments don’t simply print lots of money when the economy is in a recession (a recession is a situation where demand is low because many people are out of work and therefore don’t buy as much).”
Let’s say a country uses inflation to their advantage. Many people want to trade with them because it is cheap, for their value is lower. The workers will suffer, because there is a high demand for the goods and products, but the economy is boosted, for there such a high demand for their products, so it makes up for that value.
Now, when that universal question is brought up, it’ll be easier to understand just how intricate the economy is, how careful countries have to be with trade, and you’ll have an answer to stubborn grandparents.
