If inflation is increased, is value of currency decreased or increased ???/?
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This entry was posted on Tuesday, February 9th, 2010 at 5:17 am and is filed under Currency Trading. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
February 9th, 2010 at 5:17 am
Decreased.
February 9th, 2010 at 5:17 am
Inflation makes it such that your money today is worth less than money in the past. Thus, you can buy less with your money, so the value of currency is decreased.
February 9th, 2010 at 5:17 am
Inflation means the value of each unit decreases. Where a loaf of bread cost $1.50 it would go on to cost $10 (just an example).
There is hyperinflation as well e.g. a loaf of bread going from $1.50 to literally millions or billions of dollars, like what happened to Germany in the 1920’s - 1930’s.
What you can buy with a dollar (or mark, frank, euro, yen, etc.) is less than before.
February 9th, 2010 at 5:17 am
Continuous increase in price level is known as Inflation. Though, the inflation is said based on price level, the real term of inflation should be explained with the real value (purchasing power) of money. When inflation goes up, the real value of maney decreases. This is why inflation is referred to decrease in value. This can be explain with a small example.
Assume that price of a product is $10. When you spend $100 on this product, you may buy 10 products (called as the purchasing power of $100 in relation to the product). If the price of the product increases to $20 due to inflation, you can now buy only 5 products for the same amount of money $100. Because of the inflation, the product purchased for $100 reduced (in real term) to 5 from 10. This is called value reduction of money ($100) in terms of real products.