Inflation—Deflation
Monetary Surges

Surges in the money supply - up and down

To this point I have modeled steady changes in the supply of money in order to reduce the number of variables that you need to think about. Now, I think you might find it informative to see the effect of surges in money (changes in money growth that only last for a period of time).

By starting and ending with a fixed money supply I hope you can see, on one chart, the influence that changes in the quantity of money have on dollar prices.

In all of the charts on this section I have increased (or decreased) money supply by 2% per month only during the months 20 through 30. I used a large change in money supply to emphasize the effects shown in the curves. The direction of the influence has more importance for sake of learning than the magnitude.

We start the models demonstrating monetary surges with an Inflation Surge with Production Up