Defining inflation is the slow and on-going price increase of commodities, goods and services observed over a long period of time that reflects rising annual costs for manufactures and consumers. Inflation can be created using two different scenarios. On one hand we can use the quality theory of inflation to determine how inflation is created. On the other hand we can use the quantity theory of inflation to explain it.

To explain the quality theory of inflation we see it as founded upon the belief that a currency being used is acceptable and capable of being traded for goods and services, but also is beneficial to the buyer. However explaining how the quantity theory of inflation works is associated to the aspect of currency. This theory actually takes into account the currency’s supply and demand aspects as well as its nominal value of exchange.

Inflation will create many effects upon an economy both good and bad…

Read More