The Free Market Center
The Free Market Center
| Shoe Production Fixed | 0.00%/Month |
| Wheat Production Fixed | 0.00%/Month |
| Money Supply Increases | 0.50%/Month |
We'll begin our look at the effects of an increasing money supply with a scenario in which production of our two products does not change.
Right off the bat you can see that although production does not change, throughout the 60 month period for either product, the dollar price for both does increase.
In this scenario dollar price changes give a false signal of declining production of both products when the production of both does not, in fact, change.
Notice that the change in the quantity of money does not affect the ratios for direct exchange of these products.
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Right away we begin to see the distorting effect that monetary growth has on dollar prices, and the information they convey.