The Free Market Center
The Free Market Center
Inflation - Shoe Production Decreases
(Increasing Money Supply)
| Shoe Production Decreases | -2.00%/Month |
| Wheat Production Fixed | 0.00%/Month |
| Money Supply Increases | 0.50%/Month |
In this scenario shoe production (and sales) decreases, while money supply increases.
Again, the increase in the supply of money distorts the information conveyed by dollar prices. An increasing supply of money reinforces the dollar price increases caused by the decline in shoe production. This dollar price increase makes it look like the production of shoes has declined more than it actually has.
Again, the dollar price of wheat rises in spite of no change in production.
As before direct exchange prices contradict the information provided by dollar price changes.
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The decline in shoe production offers an opportunity for an entrepreneur, but the increase dollar prices caused by money inflation makes that decline seem greater than what has actually occurred. Will this cause the entrepreneur to over estimate the potential market.