Inflation and money supply

Discussion in 'Economics' started by fblasques, Dec 16, 2005.

  1. fblasques

    fblasques

    why is inflation directly proportional to money growth?

    Movements of aggregate supply and demand curves should make the relation beetwen money supply growth and inflation not directly proportional...

    if money supply grows 3% prices increase by 3%...

    How is this possible when for example we have continuos increase in productivity shifting the supply curve and reaching a new equilibrium were prices are lower...

    is this beacause the demand curve tends to follow the supply curve?

    increases in productivity may also increase income thus shifting both curves...
     
  2. not true.
     
  3. Its not. The slope and profile of either curve are 1) asymetrical, due to inherant differences in either 'side' and 2) always in flux.

    There is no perfect equality. Only for straight lines and bounded curves with an identical slope. Which either do not have.

    My impression is that symetrical lines and curves are displayed in texts to simplify concepts for the reader.
     
  4. An interesting book on the subject is The Great Wave, which takes a look at historal inflation and its causes. A major culprit has been the rampant increase in the supply of currency. Note, I did not say the supply of money. There's a difference, though obviously a relationship.