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What is the difference?


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#1
GlidingWings

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I am not financial expert. Or that to say I would not understand a lot what is going on in a Forbes magazine. I just learned what Revenue is. Even though over the years I have heard of this word I just thought it was some kind of government term. Not an issue for me to know of.

Now here are 2 terms I am not familiar with as how each one works. When I was in school sorry to say but I was not taught this. I did ok in social studies but little government was taught to me in these kinds of areas. Well that more in the aspect of Economics.

Sometimes the News on TV will say we are in a Recession. The other times they will say there is inflation.

Now the question is what is the difference between a Recession and Inflation? And is America facing a problem of recession or inflation or both? Please help me to understand these terms. If one can help me to understand what these are the next time I read anything due to business I the can comprehend what they are talking about.

#2
udx

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I am not financial expert. Or that to say I would not understand a lot what is going on in a Forbes magazine. I just learned what Revenue is. Even though over the years I have heard of this word I just thought it was some kind of government term. Not an issue for me to know of.

Now here are 2 terms I am not familiar with as how each one works. When I was in school sorry to say but I was not taught this. I did ok in social studies but little government was taught to me in these kinds of areas. Well that more in the aspect of Economics.

Sometimes the News on TV will say we are in a Recession. The other times they will say there is inflation.

Now the question is what is the difference between a Recession and Inflation? And is America facing a problem of recession or inflation or both? Please help me to understand these terms. If one can help me to understand what these are the next time I read anything due to business I the can comprehend what they are talking about.


Recession is when the economy (calculated in GDP, or total value of the country's economic activity) ceases to grow or shrinks.

Inflation is when your money becomes worth less. There are many reasons why inflation occurs. In order to understand inflation you need to understand what the current money system is based on. All nations in our day use a type of currency call fiat currency, which means the government prints a piece of paper and assign it a value (by making in legal tender for debt/taxes), but the paper itself has no value. If the amount of money in circulation increase at a rate faster than the amount of goods/services available then the price of these goods/services would naturally increase in price (inflated), and the value of each dollar goes down in value. Overtime the value of the paper currency becomes less and less as more and more money is printed. You could see effects of inflation when prices of everything goes up. In a stable economy base on fiat currency system, inflation rate are around 1-3% per year, which means what you need $1.00 to buy now would cost about 1-3% higher (inflated price) in a year, each dollar you own is now worth less.

You could see dramatic effects of inflation like in Zimbabwe when money printing goes out of control.

Inflation in recession are not mutually exclusive and can occur at the same time. You could see that in history when the German's lost WWII the country fell in great recession and their money becomes hugely inflated (worthless).

As you know the US government recently increase the amount of money supply in circulation in a dramatic fashion (bailout and fund debt), at a rate a lot faster the the economy, therefore all signs points towards a large inflation very soon.

Inflation hurts people's savings because each dollar saved is now worth less, therefore many people preserve the value of their saving by investing in stuff that at least keep up with inflation such as stocks or mutual funds.

http://en.wikipedia.org/wiki/Inflation




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