Inflation and its types

Money mass (M) is the sum of all money in circulation and velocity of money (V) is how many times money passes from hand to hand in a year. M · V gives the value of goods and services bought in a country in a year, and from the other side it equals P · Q, where P is the average price and Q the quantity of goods and services: M · V = P · Q (the Fisher equation, the law of money circulation). Q cannot grow instantly, so if the volume of goods is unchanged, a rise in money mass leads to higher prices. A steady rise in average prices is inflation and a steady fall is deflation; under inflation the purchasing power, that is, the value of money, falls. Causes: more money in circulation than the value of goods (demand exceeds supply) or rising costs of resources and wages that push up production cost. To measure inflation, a consumption basket is used — an unchanging set of goods and services that an ordinary family buys all the time; consumer price index I = current value of the basket : base value. Hyperinflation is extremely fast price growth: economists usually call it hyperinflation when prices rise by more than 50% a month (that means more than 100-fold a year).