What is inflation? --To generalize or expand an equation of supply and demand--




Acording to the dictionary about economy and economics in Japan,inflation means rising prices which last.
Prices is avarage of price index of goods,and price is the thing which express the value of exchange of the goods by the quantity of money.
Now the condition to rise the price is increasing demand.Inflation means duration of the shortage of supply to demand in other words.
Deflation is the opposite of this.


A principle of inflation


As writed before,Inflation occur increasing demand if supply don't change,or decreasing supply if demand don't change.Other causes is secondly ,thirdly cause,the balance of demand and supply makes the fundamental cause which lean to inflation or deflation.
For example,cost push inflation has the following mechanism:
Let's suppose that a company raise the price of a goods because of that the price of the materials rise.in that case,if customers accept that price and buy the goods then the inflation occur,if they refuse the price then the inflation don't occur.
Let's suppose that the price of the goods rise from 100yen to 160yen.Customers accept that price because of there is not the substitute or the goods is necessary goods etc.,this thing has equal value to increasing demand 1.6 times.

Let's suppose the central bank make new money(Xyen) and give Mr,A Xyen.Does rising prices which is worth Xyen occur?

(1)In case that Mr.A has enough demand(he has enough wants and money in other words).
He buy goods which is worth Xyen in the market.In other words he changes goods for Xyen.
In that case goods which is worth Xyen was lost in the market,so the company products that goods.If it think that the demand of the goods rise,it raise the price of the goods.In this time the rising of prices occur.

(2)In case that Mr.A doesn't have enough demand(he has money but doesn't have wants in other words).
He doesn't buy goods.The quantity of goods doesn't change.
Rising of prices doesn't occur,only he save Xyen.


What is hyper inflation?

Hyper inflation isn't only strong inflation.It is the inflation which is broken the part of function of money.


The effect of helicopter money

Let's suppose that money is scattered from the sky by helicopter.If people who have enough wants then demand which is worth that money is maked,And then the power of rising price works.

However there is a side effect.People comes to expect that the government gives money when they are in financial difficulty(An occurence of moral hazard).The working motivation decline.The percentage of unemployment rise,the quantity of product fall.And inflation progress because of the quantity of supply fall.Finally the central bank issue money because of import is over export,hyper inflation occur.

The policy of economy of "Only giving money" is dangerous.We must give money in exchange for something to cost.Keynes's intention of that "Give a work whatever it is only dig and fill holes." is in there.

A theorem of helicopter money Giving money without cost make the value of money lose.



About the quantity theory of money which has finished completely historical role

The quantity theory of money is appropriate when the wants always exists,because demand is formed by that thing.Therefore if wants doesn't exist,that theory isn't appropriate.That theory has been substituted totally by the theory above.
We must recognize two elements of wants and money in a concept of demand in the future.



What is stagflation?

The cause of stagflation is maintaining demand in high percentage of unemployment because of that people have enough money.





A measure to the inflation

We need to stop increasing demand or to increase supply to be proportionate to escape from inflation.
A measure to the deflation is the opposite.

















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