Inflation—Deflation
Direct Exchange - Wheat Production Decreases

Wheat Production Decreases

Shoe Production Increase 0.00%/Month
Wheat Production Decrease -1.50%/Month

One example of the effect of changes in the production of wheat should demonstrate a similar effect.

This time the production of wheat declines.

Inflation-Deflation

Wheat production decreases by 1.5% each month (previous month's production times -1.5%), causing the price of wheat, in units of shoes, to increase each month. It will require more and more pairs of shoes to buy each bushel of wheat (the blue line).

Conversely, the price of shoes, in units of wheat, declines each month. It will require fewer and fewer bushels of wheat to buy one pair of shoes (the red line).

Exchange ratios again remain reciprocal throughout the 60 month period.