The Free Market Center

The Free Market Center

Inflation—Deflation

Deflation - Shoe Production Increases

(Decreasing Money Supply)

Shoe Production Increases

Shoe Production Increases 2.00%/Month
Wheat Production Fixed 0.00%/Month
Money Supply Decreases

-0.50%/Month

In this case the production for shoes increases.

Inflation-Deflation
Dollar prices decline as you would expect. But, notice how they decline more than when production increased in an environment of fixed money supply.

Direct Exchange

Inflation-Deflation
Again, the direct exchange prices move in an inverse relationship.

Deflation (decreasing money supply) pushes dollar prices down more than expected.

What happens when shoe production declines?

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& 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: