Friday, July 17, 2009

What causes inflation?

Depends which economist you ask.

Some argue there's a strong link between inflation and the supply of money. If the amount of money in circulation rises, so will prices. Some economists warn that higher inflation than what we've been used to for the past 15 years could return as a result of all the economic stimulus that governments have been injecting to try to deal with the recession of 2008-2009.

Others point to an overall demand in the economy: if demand for products exceeds the capacity of factories to build them, prices will rise. Prices fall if fewer and fewer people want to buy those products.

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