Money and Inflation

The nation's economic stability has many factors which amount to inflation.

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Inflation may be caused by a number of problems, but there are some specific

examples which have direct control over which way the prices and spending sway.

Inflation simply means that the American dollar, in this case, is less valuable

on the foreign exchange market and the gold standard is moved to higher prices;

which simply means that more currency is needed to exchange for gold.

Any slight change in investments or a company's cost premium could change

the entire economy because of the domino effect acting on the rest of society.

For an example, flooding in a particular region of the country could cause

inflation. In the long run, the flooding may be catastrophic for businesses

because it could cause a shortage of products. In order for the businesses to

make up for any lost income, they must boost their prices and make the profit

margins go up. The profit margins make up for the lost income and balance out

that particular company, but everyone else must suffer the consequences. In the

business world; the more they produce, the less they can sell for; the less they

produce, the more they sell the product for.

Profit margins can have a direct impact on the consumer. The more an item

cost, the less a consumer will want to purchase that particular good. Higher

profit margins may be able to balance a company's budget, but unless their

product is in very high demand, most people will want to buy the product. The

lack of people purchasing the item may cause the company to lose money and have

no alternative other than to lay off workers. People out of work means that

less consuming will take place, meaning that other businesses will hurt due to

the lack of sales, perhaps causing those other businesses to move up their own

profit margin, in turn creating the same cycle at a faster rate.

With businesses under, the unemployment rate would be phenomenal. People

would be seeking government assistance while the government itself is so far in

debt and tied up in credit. The government assistance would add to the already

huge problem of the federal government spending more than it has. The result of

all the hand outs would cause an enormous dent on the federal deficit. The

deficit is already bad enough, but in a case like this, the government would try

to do something to prevent a long recession.

The Federal Reserve bank tries to balance the economy out by influencing

other banks to print up more money to make up for the losses. This may stop the

ship from sinking all the way, but this decreases the value of the dollar

because of the excessive amount of money in circulation. The dollar is less

valuable on our own market, so prices rise. The dollar is also less valuable on

the foreign market which means that it takes more money to equal a yen, mark, or

pound. Also, the value of an ounce of gold is worth less due to the gold

standard, which lets gold be redeemed for dollars. Inflation has occurred and

value of the dollar has decreased. If most people wouldn't panic and just stay

calm, less stress would be spread, making the entire economic industry a safer

and easier thing to live with.