Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Maurice Winn who wrote (5897)	7/16/2001 3:49:17 PM
From: Ilaine	Read Replies (1) of 74559

I agree that exponential growth is faster than arithmetic growth. An increase in the money supply causes prices to go up, ceteris paribus. A decrease in the money supply causes prices to go down, ceteris paribus. An increase in production causes prices to go down, ceteris paribus. An increase in demand causes prices to go up, ceteris paribus. But in the real world, ceteris is never paribus, and more complex forces are at work on prices. An increase in production without an increase in productivity may cause prices to go up because the number of workers employed goes up to the extent that wages are increased. An increase in production accompanied by an increase in productivity may cause prices to go down because the increase in productivity reduces the costs of production, and thereby the price per unit of good produced. An increase in demand may ultimately lead to lower prices because more people start producing the item demanded, and compete with each other for the customers, especially if productivity increases. An increase in the money supply may ultimately lead to lower prices because entrepreneurs use the cheap money to invest in more productive machinery, enabling them to turn out consumer goods via mass production. >>if an economy is growing exponentially and the money supply arithmetically, that will cause inflation<< How does that work?

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