Video about the basic concept of Inflation
The Classical Theory of Inflation
The level of Prices and the value of money
-Suppose we observe over some period of time the price of an ice-cream cone rising from nickel to a dollar. What conclusion should we draw from the fact that people are willing to give up so much more money in exchange for a cone? It is possible that people have come to enjoy ice cream more. Yet probably not the case. It is more likely the people's enjoyment of ice-cream that stayed the same.
This insight helps point the way toward the theory of inflation. When the price rises we can see as price level measures of money. A rise in the price level means a lower value of money because each dollar in your wallet now buys a smaller quantity of goods and services. Now as we turn this idea as a inverse case, we can notice that as the price goes up, the money value actually drops. (Money/Price)
