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Inflation is an increase in the money supply. If you see everything from this lens then it all makes sense. Prices of specific commodities and consumables may

by rax0m 4y ago

Inflation is an increase in the money supply. If you see everything from this lens then it all makes sense. Prices of specific commodities and consumables may rise or fall, but if the money supply and demand remains the same the overall combined price of everything remains the same.

seanmcdirmid 4y ago
Inflation is an increase in money supply over an increase in the value of things to buy with money (or we could say the size of the economy). Money supply could increase, but if it is balanced with a growth in good supply, inflation doesn’t occur. This is why it can’t be computed directly.
- zeroonetwothree 4y ago
  That is not true, inflation is exactly when the money supply increases. It doesn’t matter what happens to “good supply”. In fact the supply of goods increases in response to a price increase. That’s why most people think a low level of inflation is healthy.
  - whimsicalism 4y ago
    if money supply doubles and velocity halves, there shouldn't be inflation.
  - supertrope 4y ago
    Production can overcome monetary inflation. PCs don't cost $5,000 anymore even though there's more US Dollars circulating. Cities that gain many high earning jobs will see housing inflation even though employers do not create money. This is independent of national level monetary policy.
  - seanmcdirmid 4y ago
    Let's say your money supply is based on gold, which is relatively fixed. However, your economy and population keep growing. So a loaf of bread cost 1 gram of gold one your country only had 1 million people, but now you have 100 million people and the same amount of gold you are using for money. How much does a loaf of bred cost (bread production has gone up 100 times to match population increase)? (simple estimate: .01 gram of gold). So deflation has occurred. If your gold supply increased 100 times, the prices wouldn't have changed.

by rax0m 4y ago

seanmcdirmid 4y ago

Inflation is an increase in money supply over an increase in the value of things to buy with money (or we could say the size of the economy). Money supply could increase, but if it is balanced with a growth in good supply, inflation doesn’t occur. This is why it can’t be computed directly.

zeroonetwothree 4y ago
That is not true, inflation is exactly when the money supply increases. It doesn’t matter what happens to “good supply”. In fact the supply of goods increases in response to a price increase. That’s why most people think a low level of inflation is healthy.
- whimsicalism 4y ago
  if money supply doubles and velocity halves, there shouldn't be inflation.
- supertrope 4y ago
  Production can overcome monetary inflation. PCs don't cost $5,000 anymore even though there's more US Dollars circulating. Cities that gain many high earning jobs will see housing inflation even though employers do not create money. This is independent of national level monetary policy.
- seanmcdirmid 4y ago
  Let's say your money supply is based on gold, which is relatively fixed. However, your economy and population keep growing. So a loaf of bread cost 1 gram of gold one your country only had 1 million people, but now you have 100 million people and the same amount of gold you are using for money. How much does a loaf of bred cost (bread production has gone up 100 times to match population increase)? (simple estimate: .01 gram of gold). So deflation has occurred. If your gold supply increased 100 times, the prices wouldn't have changed.