There are four ways the economy works when it comes to prices, employment, and what the value of the dollar is. These are inflation, deflation, hyperinflation and stagflation. Inflation can be a good thing or a bad thing, in a good economy with low employment it is good to have inflation, but when there is bad unemployment inflation is a bad thing because people do not have or earn enough money to keep up with changing prices. Inflation decides a lot in the way our economy runs and works and we use it to measure many different things.

Inflation (“A situation in which the cost of living is rising and the value of money is shrinking”)(Bade and Parkin p. G-4), is basically how far will your money go and what can you afford to buy with it. When there is inflation the value of a dollar never stays constant. Money is purchasing power and as prices go up you do not have the same amount of purchasing power, you have less and less. Things are a lot more expensive than they used to be, a lot of things have even doubled in price. Prices seem to go up but salaries and wages do not seem to go up as fast as prices do. Inflation usually reduces the level of economic activity that happ

Bade. Parkin, Foundations of Macroeconomics. Boston. Addison Wesley. p. 368, p. G-4

Another form of inflation is hyperinflation (“Inflation rate in excess of 200 percent, lasting at least one year”)(Schiller p.137) Hyperinflation can lead to a breakdown in a country’s monetary system. This happen in Germany in the 1920’s. Prices were doubling every week. As a worker you could not wait to do shopping so two times a day they were paid and given shopping brakes for them to do their shopping before prices got higher. This same situation also happened in China in 1948 and 1949 the value of money fell and people spent their incomes as fast as they could and no one wanted to save money because it was not worth it. In Russia in 1990-1992 the ruble was nearly worthless as prices rose 1000 percent in 1992. Produces and Farmers held on to their products instead of selling them because the products were worth way more than the valueless money. This caused Russian output to decline and unemployment to rise, because no one wanted to produce something that was not worth selling. Hyperinflation is very rare and very bad, and many economies have had to deal with the effects of hyperinflation at one point in time throughout their histories. With hyperinflation there is a good chance that a country’s monetary system is going to fall apart, and the country is going to suffer a bad depression, and suffer from a bad economy for a while. I do not believe that the United States could have another instance of hyperinflation, but small countries could very well experience Hyperinflation.

ens within an economy. Inflation in effect wipes out your purchasing power. As time goes by and inflation rises you can not buy as many goods

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