In 1950s, people could buy a piece of bread for 2 to 3 fen, a new bicycle cost less than 20RMB. However, in the 21st century, bread, bicycles and almost everything cost a lot more. Clearly, we've experienced a significant inflation over the last 50 years.
             Inflation refers to a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every RMB you own buys a smaller percentage of a good or service. Although it is common knowledge that prices go up over time, the general population does not understand the real forces behind inflation.
             What causes inflation? How does it affect economy or what are the costs of inflation? This essay will analyze these questions, give some popular ideas and finally this article concludes that the main causes of inflation could be the increasing demand, the rising costs of production and the shifts of pattern of demand. The costs might be the uncertainty and lack of investment, the redistribution of wealth, worsening the balance of payments and reducing the economic growth.
             Inflation is defined as: "An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rises in prices; it may be caused by an increase in the volume of paper money issued or gold mined." (Webster's New World Dictionary).That is to say inflation occurs when the general level of price rises. Generally speaking, inflation is a general rise in prices across the economy. This is distinct from a rise in the price of a particular good or service.
             The classical view of inflation is about the quantity theory of money :( money supply) × (velocity) = (price level) × (amount of output).It assumes that velocity and output are independent and relatively constant (http://www.thinkquest.org/library/).Judging from the classical view of inflation, the only thing that causes inflation is, in reality, cha...