How does the economy work?

Supply and demand!!!!! For example: If you have a lot of something, let's say...Gameboys...and the demand for the Gameboys are low, (this means no one really wants them) then the price of the Gameboys will go down so that the stores can sell the products. Now let's look at the Nintendo Wiis. The supply is low, the demand is high. Therefore, the price will go up. Supply and Demand makes our economy go round.

Very true, and if we look at money as our basis for the economy, once boiled down to it's simplest form, that $20 bill in your wallet represents nothing more than the ability to do work. There can only be as much money in the economy as there are goods and/or services to back up said money. If there is not enough goods or services to back up the money, then the value of the money goes down. Remember those candy bars used to be just a nickel? Which means a five dollar bill today might buy me two gallons of gasoline today, but in three years it very well may just get me a single gallon. One of two things happened, we either printed more money, making my five dollars less valuable, or we printed no new money, and the demand for gasoline simply went up, causing the price to rise.

Remember, at the end of the day a dollar bill is just a piece of paper with pretty pictures on it. The only value it has is that which we in our own minds give it.

So basically, it's the supply and demand.

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