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To: econjack

There is a certain quantity of money. If that quantity is not increased, i.e. with inflation, then the rise in price of one commodity will lead to the increased scarcity of that commodity and/or to a lowering of the prices of other commodities and services. With an increasing level of the quantity of money then the average of all prices will rise, though the effect will be uneven. It is economics and it is common sense. As a larger portion of a static money supply must go into one sector of the economy, transportation/fuel perhaps, then there is a smaller portion of the money supply available to all other sectors and their prices will fall.


87 posted on 06/20/2021 12:09:52 PM PDT by arthurus ( covfefe.,)
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To: arthurus

The Quantity Theory of Money as expressed by Friedman is:

MV = PQ

where
M is the money supply (all forms)
V is the velocity of money
P is a price level index
Q is real output.

In simple terms, PQ is the real output and MV is the dollars chasing that output. Your analysis assumes that V is constant, and the article points out, this is not the case. The money supply is not static.


88 posted on 06/20/2021 1:07:08 PM PDT by econjack
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