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    rock-onn's Avatar
    rock-onn Posts: 5, Reputation: 1
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    #1

    Apr 8, 2017, 06:41 AM
    Causes of inflation
    The causes of inflation are cost-push, demand-pull and monetary expansion.

    I read a few webpages on inflation. I understood the concept of cost-push, demand-pull. But I don't understand how does increase in money supply result in inflation.
    smoothy's Avatar
    smoothy Posts: 25,490, Reputation: 2853
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    #2

    Apr 8, 2017, 07:35 AM
    If you have one of something to sell and ten people want it... what happens? And why? Assume none of the 10 people are family or friends. Now assume the cost to make that one thing goes up for you to create it, what happens and why?
    rock-onn's Avatar
    rock-onn Posts: 5, Reputation: 1
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    #3

    Apr 8, 2017, 09:03 AM
    If ten people want the same thing, the highest bidder would get it and hence price increases.
    If cost of making increases then price would increase to keep same profit margin.

    But I don't understand relation of monetary expansion to inflation.
    Cat1864's Avatar
    Cat1864 Posts: 8,007, Reputation: 3687
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    #4

    Apr 8, 2017, 09:28 AM
    Those ten people have limited resources. If each of them has ten dollars, then the most any one of them can pay is $10. Say someone from outside the group gives them additional funds. What happens to the price of the product? Is the product worth more? Did anything change in its production?
    ma0641's Avatar
    ma0641 Posts: 15,675, Reputation: 1012
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    #5

    Apr 8, 2017, 05:32 PM
    But I don't understand relation of monetary expansion to inflation.


    Look at what happened in "Living Wage" cities. People all of a sudden had more money to spend. Great. Now look what happened to housing prices and rents. In Washington and Oregon, they went up dramatically. Oh Yes, so did income taxes!
    Here is an NC study

    Living wage standard increased, organization points to rising housing costs - Carolina Public Press

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