What is inflation? | Inflation | Finance & Capital Markets | Khan Academy
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- Опубликовано: 20 июл 2011
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The basics of what price inflation is and how the CPI-U is calculated. Created by Sal Khan.
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Finance and capital markets on Khan Academy: $1 went a lot further in 1900 than today (you could probably buy a good meal for the family for $1 back then). Why? And how do we measure how much more expensive things have gotten (i.e., inflation)?
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watching this in 2020. Quarantine life bruhh
Cost of education: people taking out so much loan to get a degree and end up with a job that don't pay much or they might not be working at all.
Yes but what CAUSES inflation to begin with?? Why do prices HAVE to go up?? Why does inflation have to happen?? I apologize if these are dumb questions, I'm just trying to figure this out. If anyone could please let me know the answers. Thank you.
exactly like none of this HAS to happen we can easily just change up the rules
It's basic demand and supply. If 10 people want to buy limited bread, the seller will increase the price so that whoever has more money buys it
Printing out out more money into circulation causes inflation. An increase in money supply devalues purchasing power. This is a old video, so he didn't realize how relevant that would be to our current situation. Every time politicians give you so called "free money" for covid relief, they're driving prices up.
However, inflation wont settle in for a year or two, but it's not going to be fun. My advice is start buying gold and bitcoin because our money will lose value and you'll be poorer as a result.
High taxes on businesses can drive prices up too. If you over tax a business, they raise prices and fire people to make up for the money government took from them.
I’ve watched like 3 vids on inflation and I still do not know what it means
Can you do a video on PPP? You seem really good at all this economics stuff. Maybe you should do global economics after that. I think it would help tons of people.
I agree with the post below @mdadnan. I don't know which order I should watch them in. Please prefix with a number or something to indicate the order.
It's too bad the government doesn't always use the same basket of goods. They often swap items to get numbers to fall (or rise)
in a way that makes the CPI look like it's not moving up as much as it actually is.
I believe you meant to say, in your example in the video, that we say that "inflation is 2%" rather than "the inflation rate went up by 2%."
What does the determined percentage that is assigned each year depend on?
Sal if you are watching can I suggest to put a number in the video title before and after? Usually you have just the title like "What is Inflation" I download all videos but once downloaded they are not in sequence(see the algebra videos they are numbered in end). Obviously you made in a sequence but I have no clue which one should I watch first(in the finance section). Another related issue I cannot find a missed video in the finance section, alphabetically ordered once missed difficult to find
Our differences
1) Agreed -without losing it's -current- value
2) Non-monetary properties give it a high assigned value
3) Agreed, deservedly high assigned value as result of it's properties of rarity, longevity,
electrical & chemical
4) Agreed
5) Fungible but because it is not always a required unit of a fixed & standardized CPI it is not always amenable to liquidity which is economically wrong
6) Agreed but as a standard of exchange & not as a monetary coin
7) I need the standard not the coin
@alphacodexx exactly, the two most important resources are not included...
Aww...i thought he was making a video of cosmological inflation...and then i realized it was in finance...
Sal please make a video on cosmological inflation, it's confusing.
How long does it take before these vids are on the khanAcademy website??
That was exactly my point. Gold does -not- have intrinsic value; nothing has intrinsic value. Gold's ornamental properties (not qualities) & gold's industrial properties are intrinsic. Properties of objects are natural. It is the way they are. Values are never intrinsic. Values are assigned as an abstraction of the properties of the object.
Value is emergent. But the valuing system today is -not- objective; it's an ideology. >Money value< is NOT based on the intrinsic properties of goods traded.
When too much money chases too few goods.
"Gold 'officially' dates back a few thousands years." Try about 5,000 years.
You need to clarify that 5,000 is not coinage, it's artifacts.
Coinage is very new on the human time scale of money.
Please do explain how you easily identify the difference between 18K & 24K when you're buying your groceries and making change?
How many coins can you carry in your pocket?
How many coins can be rapidly redistributed to replace credit?
How are the coins going to tracked and separated from painted lead?
Questions, why did we move away from elemental metal "money", ie. Gold, Silver etc, to paper currency? Paper currency can be forged, elements can't be. Does the world need more "money" that there are elements in the world? Paper of course can be easily reproduced (for circulation). Would be interesting to see a comprehensive historical/economical discussion on paper currency and metal currency.Especially with how gold and other metals affect regional and world economies. Any videos address that?
I always wanted to understand what inflation is, but when I finally understood the concept it was the other way around before watching this video! somebody explained it to me as the reduction of people's purchases that lead to the increase in goods' prices!!!! o_O
could it be both ways? like decrease in purchasing power due to increased prices and increased prices to compensate for reduced purchases???
So if say i have a billion euros and live from percents from that billion, do i create inflation?
Lots of things are "shiny," but most of them have never been used as a medium of exchange. Absent legal tender laws, gold and silver eventually win out in more advanced populations.
Gold/silver are natural monies for following reasons:
1) Scarcity
2) Fungibility
3) Possess non-monetary value
4) Divisibile without losing any value
5) High unit value per measure of weight
6) Durability
7) Hard metals but are malleable so as to be fashioned into coins
The basket of goods is hugely flawed. If someone was buying beef and then beef became too expensive due to inflation, and they had to buy chicken instead, the CPI would go down because the basket would change from calculating beef to the cheaper chicken. Also most actual major living expenses are now excluded.
You forgot.
Hedonic quality adjustment.
Food and fule exclusion.
Basket of goods Substitution bias.
Teach people the full story. Not just part. or at least follow up on these topics.
I actually said that gold is obsolete as a monetary coin. I think this, because it is impractical as a coin in this period of time when its value is tracked & traded on computers. As an exchange standard it is an excellent media to assign a value to. Its properties allow it to withstand time (key). I don't value my computer I value the information the data on it & on the internet. Money is an exchange medium & you are correct when you say paper monies are obsolete but so is trading gold coins.
Malaysians are using gold. Just because the govt. issues a paper currency doesn't mean that people aren't using their preferred monies. That Malaysia is tiny (why you felt the need to capitalize that word is beyond me) is beside the point.
BIG (see, I can do it too) countries will be going back to gold within the decade. The process of increasin gold stocks has already started in countries like China, India, Russia, et al.
"Gold coins are obsolete and anarchic?" Well, you said it, it must be true!!
The only reason that gold is not in use as money right now is due to paper legal tender laws by governments. They want to be the monopoly issuer of paper currency. It wasn't due to competition. If it were, people would use those paper notes to burn or save as novelties.
By anarchic I take it you mean old. Yep, gold as money does go way back. It's been money for thousands of years for reasons.
@evergreend Inflation comes (top to bottom) from financial institutions or the government. Normally consumed goods prices people have no control over it. If the dollar gets cheaper for Chinese and Yuan increases then it gets expensive for the US to do any imports, they will do less or as required making local prices go up.
Why did they change the dictionary definition? To get away with the monetary crap they're doing now?
@josepharchbold All in one video titled "everything ever"
There was no talk of the CPI shuffle. Every year/quarter/week/day/whim the "basket of goods" becomes a different basket so that calculation for inflation is an apples to oranges comparison. Today gasoline might be included tomorrow it is not. Today coffee might be included but several weeks ago when it was not, when every coffee distributor skimmed 2oz out of every bag but kept the prices the same. You just lost 2oz of coffee buying power. Is that hidden inflation? Yes it is.
@VERGIS92 what research? You still failed to site your source. Telling me that it is based on some obsolete data mining err. meta analysis means --- absolutely nothing.
@generationalist that 7% is a figure based on a research done in the UK years ago, the people interviewed were either paying rent, or paying off a mortgage (the biggest expense), then spending on all other things. If they left their money in cash, it would lose 7% of its buying power in a year! that's
7% inflation.
For people who live on rent, it can be even higher, since rent increases alone can hardly be absorbed.
I think you meant the history of gold and not the history of money. Gold artifacts only date back a few thousand years. Gold coins are even younger than gold artifacts. The natural properties of gold -once they were understood- made it -the- obvious choice for a standardized currency. It's not magic it's a rock with properties that made it the primary choice before computers. Now it's a good standard, just like many other commodities. But a gold coin monetary system is both archaic and obsolete.
"Incapable of understanding..."
We agreed many posts ago that gold/silver has no intrinsic value. But what you don't grasp is that people do value it for non-monetary uses. That and its other attributes is why it wins out as a money. U-N-D-E-R-S-T-A-N-D?
Aren't Food and Energy (fuel) Excluded from the governments Inflation Numbers (CPI)?
Shouldn't these two categories Alone be the Most Important part of the CPI?
Why would the government exclude these fundamental necessities of Everyday Life?
1) Scarcity
Relative to -human- restrictions of earth's present supply.
2) Fungibility
You are mixing up liquidity & fungibility.
3) Possess non-monetary value
Possesses non-monetary "properties" (not value).
4) Divisibile without losing any value
Again you're confusing properties and value.
5) High unit value per measure of weight
Assigned by humans, gold is not magic.
6) Durable
Again that is a property & not a value.
7) Soft metal not hard. Good for very little until electronics came along.
What is a "storehouse of value" that has no objective meaning. Value is assigned so you can not physically store a value in a storehouse. You can count the assigned value associated with a physical volume of commodities placed in a storehouse but you can not physically store a value. Data bits are no different than value. As a matter of fact, the data assigned to a bit is called an "assigned value" for a reason. Also, you can store that value in a register (neither of which physically exist).
We all know that high national debt in the U.S. is a bad thing, but did you know that it can actually drive inflation to higher levels over time? The reason for this is that as a country’s debt increases, the government has two options: they can either raise taxes or print more money to pay off the debt.
And people told me we COULDN'T "print more money." I said that years ago, or I asked it. IDK anything about Economics but I was related to a person who was Vice-President of his company at 29 and he told me you could print more money. The people I suggested it to acted like it was the dumbest idea they ever heard.
@hyylo the price of gold does NOT determine the price of the dollar - now your moving into international economics. Inflation is the correlation between printed money/credit moneys and the cost goods that are associated with them through the stock market and the commodities markets. If a company lays off 2% of it's staff and sees a quarterly profit return by putting people on the street, investors might buy that stock. They see the profit not the mismanagement. Hidden inflation is the result.
"Gold coin is both archaic and obsolete?" Don't confuse governments making themselves monopoly issuers of political currency, i.e. paper currency, for a real competition. Absent legal tender laws that require a person to acquire Federal Reserve notes to pay taxes and not being able to refuse them in payment of a debt is the only reason that paper is used.
"Archaic." Paper is a very old idea, too. It's not bad because it is old; it's bad because it fails.
Perhaps intrinsic value is the wrong way to put it. People value gold and silver for their ornamental qualities and their industrial uses.
For a free market money to function as such, it must have non-monetary values and be a highly saleable good. That means every individual does not have to value that highly saleable commodity. It means that they know that they can trade for commodity with the expectation that others value.
Money is an emergent order. It can be produced by the market.
Inflation is caused by the increase of the money supply. The more money you print the more inflation you get.
The best way to measure inflation is to look at the change in gold price.
Gold has been used as money for thousands of years. Gold was once used in America as money but the government made it illegal to use gold as money. Why?
Inflation helps governments as they can print money to pay for war and other illegal government actions.
If you use gold or silver as money u can not print it.
I won't a bit shocked if an economic collapse occurs. The way we are going now it is very likely unavoidable. On this we agree.
Events could occur that would either defer a collapse or even allow us to avoid it entirely.
1st the robotic revolution could be a repeat of the computer industry in the 80s.
2nd space exploration could generate immeasurable wealth. As in commodities from the moon, asteroids & planets.
3rd we could establish an objective & not subjective commodities standards system.
@ihearu2 Sorry, I forgot the word "rate": "The inflation rate is 2%" rather than "the inflation rate went up by 2%."
No, you were clearly saying that gold is obsolete. A read through all of your posts strongly infers that.
You clearly said that ANY money is an emergent order. No, paper currency exist only when a state has legal tender laws in place. They have to be FORCED on a people. That is not an 'emergent order' by defintion. If you think it is, best look up the definition of emergent order.
Paper is a money substitute, not money.
You said paper was mostly made of rock. No, it's mostly made of trees, which is mostly carbon.
"Economy has too many religoius laws?" What does that even mean? You mean that the govt. has too many laws that tell us what to do? You mean that the govt. has too many prior restraint regulations? You mean the govt. shouldn't be trying to regulate and control interest rates, money, and banking?
"Data bits" are not money. They are accounting entries. They are not a storehouse of value.
"I think you meant history of gold, not money." The history of money is largely a history of gold/silver.
"Gold 'officially' dates back a few thousands years." Try about 5,000 years.
"Standardized currency?" You mean government seeks to make itself monopoly issuer.
"It's a rock." No, it's a metal and a commodity.
"Just like other commodities." No, gold and its little brother silver have all the properties of good money. They win out absent paper legal tender laws for those reasons.
@generationalist that's what governments do, they drop out anything that's going up, while including anything that's going down, this makes very convenient inflation numbers which helps buy more votes at next election - actual personal inflation for the average American/European is more like 7% a year.
Gold coins are still money. Check out Malaysia. Central banks still hold gold like its money.
You have grown up your entire life with paper currency. You can't comprehend anything else. It's as natural as air to you. Two generations is a tiny sliver of time though. The paper currency system is in collapse.
Gold/silver coins can be carried around, but most people would just store it in a bank. They can use debit cards and checks priced in that weight of gold/silver.
Cannot buy so many beans as I used to
@josepharchbold
I'm still waiting for Mr Khan to teach English
duolingo
My computer is not precious. It is easily replaced using any number of easily obtained currencies including credit (although I seriously doubt any store would take gold). The statement that computers have no value is correct. Computers have properties and perform services, they do not have value. Other people assign value to computers, I do not, I own several and none of them have value. I place more -value- on the data bits than I do the hardware. I subjectively assign the value to the data.
No, it is not semantics. Go look at a table of elements. Gold and silver are metals.
Gold and silver have no value? Your computer has no value. That's the equivalent of what you just said. You value your computer (it has silver in its component parts), right? So, it has value to you and many others. Same with gold/silver. They have ornamental and industrial uses. They are also natural monies. We place value on them because they have certain attributes, just like your precious computer.
I see. It sounded like you were hostile to gold as money because you referred to it as a "shiny metal." Usually most people who use that language are hostile to commodity money. They are usually paper worshippers.
If we had a free market in money absent paper legal tender laws, gold and silver would probably be the most commonly used media of exchange. That is due to their attributes.
I think by "intrinsic" people mean that others value that good for its non-monetary functions.
Buddy here is my exact quote (within a 500 character limit) "But a gold coin monetary system is both archaic and obsolete." You may want to go back and reread our conversations and quit trying to take quotes out of context. I don't know how I could have made it more clear than that. Anyone who goes back through the diatribe of our conversation will understand fully that you keep pushing gold coin with a religious belief in value & all I keep saying is that gold has no natural value. That is all.
Here are the reasons that gold and silver are natural monies:
1) Divisible without losing any value
2) Non-monetary value (this is key)
3) High unit value per measure of weight
4) Very durable
5) Fungible--one ounce of pure gold/silver is equal to any other ounce of pure gold/silver anywhere in the world.
6) Scarcity, but enough exists to function as media of exchange.
7) Hard but malleable so as to fashion into coins.
It's not a coincidence that they are natural monies
The history of money is not as old as the history of humanity. That means that gold is not the oldest form of money or trade. Gold coinage like other forms of coinage requires maintenance, upkeep & is equally impractical.
"Try about 5,000 years" like I said a few thousand. Slave commodities date 8,000 years do you defend that too?
Metal is gold's physical property, rock is it's natural state. You don't go out and dig up gold. You dig up rocks and then process gold.
Silver's a terrible coin AgO2
You failed to point out any fallacy in any of my arguments here. But you did reveal your own religious faith in gold and what you seem to believe as it's magic value. A rock is still just a rock until a `human` digs it up and recognizes its properties and only then assigns it value. Before humans evolved and established the faith of money, gold was just a rock. When we are all gone it will again, just be a rock. The goal while humans live is objectivity applied to resources -not- faith in rocks.
I'm sorry, my previous comments may have been above your head. I'll try to express it in more simplistic ideas for you. This is your comment to me "Then you give the impression that paper with ink on it has magical value because the government says so." What you have expressed is your -belief- is that gold with its shiny, conductive, chemically reactive -properties- has magical monetary -intrinsic- value because.... Now you have to explain -- why intrinsic? No value is ever -intrinsic-.
Gold and silver are not rocks. They are metals. I almost stopped reading your post when you made such a glaring error.
"Human assigned." Ah, but it is an emergent order with dispersed power, or is a centrally planned assigning (paper legal tender laws) with a small number of people deciding for the rest of us?
Carbon is not a rock. Paper is made mostly from trees.
It's not a myth. Gold and silver always win out absent paper legal tender laws.
"Before people existed, gold did not win out." What does that even mean? Why would there be a need for a medium of exchange absent people.
Gold and silver did win out by market test. They have monetary attributes that are superior to all other commodities. If that weren't the case, they wouldn't have been chosen as monies time and time again in places all over the world for thousands of years. It wasn't a coincidence.
You have read nothing of monetary history and it shows.
You keep saying gold is obsolete and a rock. Why? Your computer has certain properties. Why do you scorn gold for its properties while valuing your computer?
Money is an emergent order. It wasn't a product of central planning. Certain saleable goods progressively became media of exchange. Even if a person didn't value that commodity, they knew others would. Gold/silver were left standing when all was said and done.
Gold/silver have attributes that make them ideal monies.
Can anyone offer me a good anti-capitalist critique of the threat of inflation as a rationale for austerity and the general neoliberal project, as it seems to me that any suggestion that governments should invest and run a temporarily even larger fiscal deficit to get out of this recession is met my cries of "noooo we can't do that because of inflation" from the neoliberal reactionaries. How do we respond to this seemingly sound, if morally flawed, economic argument?
There is NO such thing as natural (intrinsic) value. Gold is a shiny pretty thing and has NO value until - we the people - assign it value. Until that time, it is just another rock. Since we the people make things that require electronic contacts with precision response times and perform chemical reactions that require a specific elemental catalyst (i.e. catalytic converters), then and only then can we assign any --`objective`-- value. I am sorry but it is pretty and shiny just does not cut it.
@generationalist
what are you talking about? i said gold is money. the dollar is not money.
the dollar is paper with ink on it.
people like you try to make economics complicated.
i think you need to read real economics such as Austrian Economics.
Stop reading the government books on economics from government schools and colleges.
Can a person be hostile to a rock? It's just a rock. There is no difference between rock money or paper-rock money. It's always the same thing, a human assigned valuing system. Neither paper (made mostly of a rock called carbon) nor gold with special properties (a different kind of rock) have value, people assign it. I'm sorry but I disagree; free market, gold vs paper is a myth. That's sea shell thinking. Data systems have already replaced money, but we have no objective value system, very bad.
No, you didn't "actually say that gold was obsolete as a monetary coin." You said gold was a rock and obsolete. You did not qualify it. Go back and read your own comments for crying out loud.
If commodity money were in use, that doesn't mean that checks, credit cards, debit cards, gift cards, traveler's checks, and bank accounts would go away. Do you make big purchases with cash? Probably not. It would be same with gold/silver. You would have accounts priced in weights of gold/silver.
Historical fact: The average life expectancy of a paper currency is 27-years. Meanwhile, gold and silver have been natural monies for thousands of years.
I'm not religious, but if I were, I'll take my golden calf over your papier mache one any day of the week.
I suspect you are going to be in a state of shock when the currency crisis comes. All the signs are there if you know monetary history. Sadly, you don't understand the nature of money, nor have you read enough of monetary history.
You do NOT understand the meaning of the word -intrinsic-. Intrinsic (NATURAL) value is a non sequitur expression. Value is NOT natural. Value is a human belief system. Humans are the only animals alive on this planet that "assigns value". This is a purely abstract idea. Humans are capable of abstracting an assigned value to an object. The very statement YOU make "Gold or seashells can be used as money -AND- have intrinsic value" is a non sequitur. The 1st part's correct the 2nd is an oxymoron.
The short answer, Obama.
I never defended any aspect of paper dollars vs gold.
You fraudulently keep trying to claim I did when I did not.
I said there is no such thing as intrinsic value. That is all I ever said.
I keep saying paper money has no intrinsic value just the same as gold has no intrinsic value.
People -assign- value to sea shells, paper money & the associated properties, of or their beliefs in gold. Only gold's -properties- are intrinsic.
I don't need falsified religious facts I have physical evidence.
I have no paper mache, I have NOT ONCE defended paper money over gold. I have repeated that statement to you several times. Either you are ignoring it or you are a deceitful liar incapable of accepting that there is NO natural value in gold. That is all I have ever stated and continue to state. Gold, paper money, computers, cow manure, whatever commodity, object or service you wish to dream up; not ONE of them has any natural value whatsoever. None, no natural value. They only have properties.