4 ms·
> Inflation of goods is caused by a supply shock or too much demand (too much spending chasing two few resources). It was my understanding that increase in the
by hodgesrm 5y ago
> Inflation of goods is caused by a supply shock or too much demand (too much spending chasing two few resources).
It was my understanding that increase in the money supply caused severe inflation in Spain during the 1500s. [0] If true how does that square with the argument that goods inflation is from a supply shock or excess demand?
[0] https://en.wikipedia.org/wiki/Price_revolution#Spain https://en.wikipedia.org/wiki/Price_revolution#Spain
- HarryHirsch 5y agoThere was also population growth as well as an increase in the velocity of money, compounded by the fact that the rural nobility was on fixed incomes, because taxes and levies were not adjusted to inflation. The inflation rate was 2 % or so, completely manageable with contemporary approaches.
- JamesBarney 5y agoThe money supply doesn't directly effect inflation. The money supply causes an increase in demand which triggers inflation. If you printed 10 trillion dollars and shot it into orbit around the Sun prices wouldn't change. People have to spend it creating increased demand. This is one of the reasons quantitative easing had little effect. They printed a bunch of money but it just sat in banks and was never spent.