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Inflation is completely possible with no change in money supply. This is handled in economics with the idea of the "velocity of money" which conceptually captur
by habnds 1y ago
Inflation is completely possible with no change in money supply. This is handled in economics with the idea of the "velocity of money" which conceptually captures the large range of factors by which prices can increase due to factors beyond money supply, for example an energy price shock or changing consumer and business expectations that result in changes in spending and investment patterns.
- weberer 1y agoIn theory, sure. But in practice the money supply has nearly quadrupled since 2005. https://www.investopedia.com/terms/m/m2.asp https://www.investopedia.com/terms/m/m2.asp https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
- habnds 1y ago$1 in Jan 2005 is only 1.69 today, not $4 because the velocity of money has decreased dramatically as it has pooled towards the top of the income/wealth spectrum where it doesn't get spent or productively invested.
- scotty79 1y agoBulk of it is that, but some of it is that larger economy needs more money to run. So while there was 4 food money supply increase the legitimate demand also increased somewhat. Exact numbers might be hard to pinpoint because we tend to measure economy in dollars but still it wouldn't be $4 even if the rich didn't get disproportionately wealthy from this supply.
- scotty79 1y ago> Inflation is completely possible with no change in money supply. Money supply always changes. But yes, inflation is possible without changing money supply, if for example economy shrinks or there's some process that reactivated dormant capital that people had just sitting around and not being used by the economy. In the end it's always the same thing. More money than it should be. It's just that "should be" is very complex and "more money" only a little bit simpler.