The Free Market Center

The Free Market Center

Inflation—Deflation

Deflation - Production Fixed

(Decreasing Money Supply)

Shoe & Wheat Production Unchanged

Shoe Production Fixed 0.00%/Month
Wheat Production Fixed 0.00%/Month
Money Supply Decreases -0.50%/Month

In this case production rate for both products remains fixed, while the money supply decreases.

Inflation-Deflation
Notice how the dollar prices for both goods decline, without any change in production or sales.

Direct Exchange

Inflation-Deflation
No change in direct exchange prices, as you would expect.

So, if the decline in money supply drives prices down without production changes, let's see what happens when we adjust production.

First, we'll look at increasing shoe production.

© 2010—2024 The Free Market Center
& James B. Berger. All rights reserved.
To contact Jim Berger, e-mail:

© 2010—2020 The Free Market Center & James B. Berger. All rights reserved.
To contact Jim Berger, e-mail: