Older dictionaries defined inflation, more accurately monetary inflation, as an inordinate expansion of the money supply. This means that the Federal Reserve Bank (in the US) has printed more money then they are taking out of circulation. That means that all of the sudden each dollar that was already in circulation becomes a little less valuable. This shows up in the economy as rising prices because it takes more of the devalued dollars to purchase the same product as before. A simple analogy to represent monetary inflation would be to think of the game Monopoly. At some point during a game another person finds a second Monopoly game and gives each player an equal portion of that games money. Everybody now has a lot more Monopoly money but the relative amounts remain unchanged. However, no that everyone has more money they will be more willing to bid more for properties, houses, and other things. The prices if sold at auction would all rise due to inflation caused by the additional money added to the game.

Economies that use a fiat currency, money that is not backed by anything, such as the current US dollar are much more prone to inflation. There is no restriction on the money supply because the government can increase the money supply by simply turning on the printing press. Governments are often tempted to solve their problems by throwing money at the problem by spending more money. They are not restricted under a fiat currency. When a currency is backed by gold, silver or another physical material then the growth of the money supply is limited by how fast the commodity can be mined or accumulated. The US constitution stated that only gold and silver were to be used as money. However, in the 1930's the US went off the gold standard and then completely ended the gold standard in 1971. That was the last year that a dollar was backed by gold or silver.

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