Explain Inflation like I’m Five. (EILI5)

Imagine you have a jar of marbles(money) and every year, someone(Central banks) adds a few more marbles to it. Now, think about everyone in the neighborhood having their own jars of marbles.

In the world, there are more people, and they keep doing more things like making toys, growing food, and building houses. To make these things, they need money. The more money there is, the more people can buy things, which also means the more the sellers can make sales too.

But, if there's a lot of money and not enough things to buy, then people might start saying, "I'll give you more money for that toy or that pizza!" That's when prices go up, and it's called INFLATION.

So, inflation happens because there's more money, and not enough things to go around for everyone, but everyone wants to use the money they have to get what they like. So, in simple plain terms, inflation is when we have way more money than the things we can use the money to buy.

Hence, to have a standard prosperous economy is your ABILITY to balance demand and supply, and this technique is what is called Controlled Inflation. So in a way, we can still define inflation as what happens when you fail to balance this out.

Let's analyse better Demand and Supply and how it relates with inflation, still using our example of marbles above.

Demand and Supply As Regards Inflation.

Now let's inculcate your cognitive abilities again. Imagine you have a box of your favorite snacks, and you have some friends who really want those snacks. Good. Hold that thought, I'll show you exactly how inflation can affect the prices of your snacks.

Demand: If all your friends suddenly want more snacks, the demand for your snacks goes up. More people asking for the same snacks can make the snacks more valuable in price as people are prepared to pay more just so you can sell to them. In the same way, when many people want to buy things, like toys or candies, it can make the prices go up.

Supply: Now, if you have a lot of snacks in your box, you might not worry too much about giving some to your friends. But, if there are fewer snacks, you might think about keeping more for yourself. So, the supply of snacks also matters. If there are not many toys or candies available, the prices might go up because they become more special.

Now, let's connect it to inflation: If a lot of people want snacks (high demand) and there aren't many snacks available (low supply), the prices might go up. This is a bit like how inflation happens. When many people want things, and there's not enough of those things, the prices might rise, and that's when we talk about demand and supply affecting inflation.

Now, if you're asking the right question, you'd probably be thinking right now, ‘what about when the supply is low, and demand is high, how does it affect inflation?’.

Smart. I'll tell you. Let's make use of our snack example once again alright;

Low Demand and High Supply:

Imagine you have your box of snacks, but this time, not many of your friends really want them. Maybe they found a different type of snack they like more. At the same time, you have lots and lots of snacks in your box because you bought a big batch.

Here's how it works:

Low Demand: Since not many friends want your snacks, there's not a big rush to buy them.
High Supply: You have plenty of snacks available, maybe even more than you need.

In this case, because there are not many people wanting your snacks, and you have a lot of snacks to share, you might decide to lower the price. You could say, "Hey, anyone who wants these snacks can have them for a lower number of stickers (money)!"

Now, relating this to inflation, in the market, there's low demand for things (like toys or candies), and there's a lot of those things available (high supply), sellers might reduce their prices. This is because they want to encourage people to buy more and clear out the extra items. In such cases, the overall prices in the economy might not go up much, and we might not see significant inflation. Instead, we might even see prices going down, which is sometimes called deflation. So, low demand and high supply can have the opposite effect on prices compared to high demand and low supply.

You might ask, ‘so then, a low demand and high supply is good for a country's economy?’ the answer is no and yes, and I'll tell you why;

Low demand and high supply can have mixed effects on a country's economy, and whether it's considered "good" depends on the context. Here are some aspects to consider:

1. Lower Prices: In a situation of low demand and high supply, businesses might lower their prices to attract customers. This can be good for consumers because they can buy things at a more affordable cost. It's like a sale where you get more for your money.

2. Deflation Concerns: While lower prices might seem beneficial, persistent and severe deflation (falling prices) can be risky. When people expect prices to keep going down, they might delay purchases, thinking they can get a better deal later on. This can lead to a slowdown in economic activity, which is not ideal for long-term economic health.

3. Business Challenges: Low demand can be challenging for businesses. If they have too many unsold goods and not enough customers, it might affect their profits and lead to layoffs or even business closures. This can have broader implications for the job market and overall economic stability. Remember, I said earlier that job data is one economic indicator the Monetary authorities use to know whether the economy is fit for a contraction policy or an expansion policy.

4. Economic Growth: A healthy economy typically involves a balance of supply and demand. While high supply can contribute to affordability, sustained low demand can dent economic growth. Governments and central banks often use various tools, such as monetary and fiscal policies, to stimulate demand during economic downturns e.g. open market operations.

5. Context Matters: The impact of low demand and high supply can vary based on the reasons behind them. For instance, if it's a temporary situation or the result of certain market dynamics, it might not be as concerning. However, if it reflects broader economic challenges, policymakers may need to intervene to address underlying issues.

So, in conclusion, while low demand and high supply can offer short-term benefits to consumers through lower prices, the long-term effects on economic health require careful consideration. Striking a balance between supply and demand is crucial for a stable and growing economy.

I hope that was informative enough, and very clear that our government is simply using money as a tool for playing politics. This is the very reason your Fiat is an agenda and not what you think it is.

If you view this from my perspective, you'll see why it is difficult for the world powers to adopt Bitcoin as a monetary standard or policy. You'll understand that Bitcoin stands for freedom, for that mere reason alone, they're still taking their time to see Bitcoin can be manipulated because Control has to be the main agenda.

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Our next topic will be on ‘Bitcoin and The Internet.’ As always, you know I'm your favorite crypto journalist, Clever Abaribote.

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