We sometimes hear the word “inflation” on the news. This means, in short, rise in the price of products or service in a certain term. For example, you can buy an apple for 1$ today and next year to buy an apple, you have to pay 2$. Compared with the former price, the price of apple rise 100% in inflation rate. And inflation occur because of rise in cost of production and rise in amount of money.
First inflation is triggered from rise in cost of production. When the cost of production rise, producer cannot help but increase the price of products. For example, you make 2 apples and sell them for $1 each every year. But unfortunately due to bad weather, you could make just 1 apple. So to get as much money as you have gotten before, you could not but sell an apple for $2. It means to rise in price of apple, and we call it inflation.
In addition to it, price is decided by the balance between supply and demand. For instance, if you want to sell an apple for 1 $ and you know its buyer, you would sell it. But if you know 2 buyer, you can keep raising the price until one give up buying it like auction. It means that because the amount of demand excel that of supply, the price change. And following this rule, inflation is caused by the rise in amount of money.
If bank produce a lot of money and give them to us, you might think you can buy more staff. Of course you can. But if everyone can buy more staff than before, at the same time the balance between supply and demand is broken. Demand gets more than supply. Then the price rise. This also means inflation.
In this way, inflation occur. And when the inflation occur, the price rise and people tend to use money as early as possible because they know the price is increasing. Then the production cannot catch up with the selling and the price keep rising. If the inflation continue like this, we cannot trust the value of money. And it make dislocated economy. So not to make it disordered and make people confused, bank works trying to make stable economy.