Inflation

Central banks are the regulator or supervisors of banking operations in a country. All member banks that operate in a country have to follow the rules laid down by them.

The government of the country usually controls their operations but in most cases they have powers to take decisions on their own.

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$37.00 in 1948 had the same buying power as $373.99 in 2016.

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Low inflation is considered good because it represents price stability, which encourages productive planning and investment.

Generally speaking, large amounts of currency in an economy where prices are escalating is termed inflation. Inflation meaning the expansion of the money supply. Often times this inflation is created by over spending by a central government.

A bonus when used in employment is typically a monetary compensation. A fringe benefit is a bonus as well, but sometimes benefits are not monetary.

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1. It can benefit the inflators (those responsible for the inflation)
2. It be benefit early and first recipients of the inflated money (because the negative effects of inflation are not there yet).
3. It can benefit the cartels (it benefits big cartels, destroys small sellers, and can cause price control set by the cartels for their own benefits).
4. It might relatively benefit borrowers who will have to pay the same amount of money they borrowed (+ fixed interests), but the inflation could be higher than the interests, therefore they will be paying less money back. (example, you borrowed $1000 in 2005 with a 5% fixed interest rate and you paid it back in full in 2007, let's suppose the inflation rate for 2005, 2006 and 2007 has been 15%, you were charged %5 of interests, but in reality, you were earning %10 of interests, because 15% (inflation rate) -- 5% (interests) = %10 profit, which means you have paid only 70% of the real value in the 3 years.

   Note: Banks are aware of this problem, and when inflation rises, their interest rates might rise as well. So don't take out loans based on this information.

5. Many economists favor a low steady rate of inflation, low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.
6. Tobin effect argues that: a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects.

"Inflated" means "artificially high" in general usage. In economics, it refers to the process by which, holding the real value of goods constant, their nominal values increases. This translates into increasing price levels.

A debtor would favour inflation; the debt would be repaid with money which is worth less than when it was borrowed.

The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well. The price of the bond decreases; the inflation premium would increase the market interest rate, which in bond valuation is located in the denominator, and the coupon payment rate is located in the numerator. When calculating the NPV of future coupon payments, as the denominator or market interest rate + inflation premium increases, the Net Present Value of future coupon payments decreases and the overall value of the bond decreases as well.

Typhoon Haiyan in 2013 caused a scarcity of food and clean water in the Philippines. Electricity also became scarce in parts of the country.

Accounting for inflation over time requires you to take purchasing power into account, thus specific rates of inflation for certain things can differ from the overall inflation of a society.

If inflation is 3% a year, then $1 this year will only be able to purchase 97 cents worth of goods next year.

So if you have a consistent inflation rate of 3% a year, and want to compare the purchasing power of one dollar from 10 years ago to the current day, then for the first year of inflation, one dollar would drop to 97 cents, and then from there to the next year, 97 cents would only buy 97% of what it could buy the previous year.

Due to this, you cannot simply multiply 3% by the number of years to find the total effect of inflation.

So you would go from $1 to 97 cents one year, and then 97 cents to 94.09 cents of purchasing power over the next year. Then from 94.09 cents to 91.2673 cents the next year.

In order to easily calculate this, you could instead simply take the initial amount of money (lets say $1), and multiply it by (1-r)^n. In this, r is the inflation rate, so that 3% would be 0.03, thus 1-0.03 is 0.97. The variable n is the number of years from year 1.

So if you were to take 1 dollar, and place it into the equation with inflation at 3% a year, you'd find that 1 * (0.97^1) = 97 cents, just like we found up above. 1 * (0.97^2) = 94.09 cents, again as found above.

So $100 dollars in the first year, before any inflation has kicked in, would only be worth $21.80 after 50 years of 3% annual inflation.

How the product looks

$10,000.00 in 1923 had the same buying power as $139,955.62 in 2016.

$100.00 in 1993 had the same buying power as $166.68 in 2016.

To determine the value of $30 million from 1850 in today's dollars, we need to account for inflation over the years. Using historical inflation rates, $30 million in 1850 is roughly equivalent to around $1 billion to $1.2 billion today, depending on the specific inflation calculator or index used. This illustrates the significant impact of inflation over more than a century and a half.