by James Dubreze

Created on: March 09, 2009   Last Updated: June 06, 2009

To admit to the idea that inflation exist, we must analyze the demand supply curve and see how it can relate to an increase in price. That is if we in fact do believe that any increase in price somehow relates to inflation. But as I will show you, an increase in price does not necessarily must relate to inflation. The identifiers that are usually associated with price are demand, inflation & deflation.

Most often price increase because of demand, the only time inflation cause price to increase, is when there's too much money in circulation. If we look at it on a broader sense, which involves the amount of good and services that are available in the market in relation to the amount of money in distribution, then we can say, it is not the price of the product that has increased, but instead the amount of money that has become available in the market. In a way, the product still worth the same, except this time we need more paper money to buy the same product. This by no way excludes the fact that inflation exist.

I know that in school we were thought that inflation is when prices of goods and services go up. Since we are now reeducating ourselves, we've found out that inflation is the consequence of an increase in the money supply. When more money is pointed out, it means that we've inflating the market with new money, but how does it relate to an increase in price is the question?

Price goes up because there is more money in circulation than there are goods and services, which then cause people to lose wealth as a result. So that we understand, when cost increased, your income and I stay the same, which thereafter caused our wealth to depreciate in value. The $10.00 hr we've received, can no longer purchase what $10.00 use to buy. So in that sense, we say that our wealth has been depreciated in value. Which also mean that inflation has gone up?

Wealth can be described as money that is left after debiting that is owed from what is earned. So you see ...it's really those of us whose income remains the same that has experienced the inflation, why? Since an increase in the money supply does not place more money in our hands, it diminishes the value of our wealth. Our wealth decreases because price goes up while our income stays the same, leaving us with less money to buy very few goods. In a way, inflation is directly related to a person income. As long as more money is being printed while our income remains the same, we've been inflated.

Therefore, we

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