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Non-Tech : Money Supply & The Federal Reserve
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To: glenn_a who wrote (343)8/16/2002 12:32:20 PM
From: Ahda  Read Replies (1) of 1379
 
Inflation = an increase in money in circulation compared to the supply of goods and services in an economy.

Deflation = a decrease in money in circulation compared to the supply of goods and services in an economy.

Would these be appropriate definitions or not?

The definitions are dictionary correct but when you have surplus dollars in a market there has to be something that absorbs the excess. When you look at the past bubble the profit for business did not increase but the wages of the CEO's in certain companies increased due to a surplus of dollars. Then you look at the fact that not all who played the market lost. The cost of housing has better than doubled in Ca in the last six years but the population has not doubled.

Product prices did not increase as efficiency in production maintained reduced costs but wages associated with bringing those products to market did. Surplus dollars found their way into the housing industry.

So if you think about it the dollars buying ability has decreased but the dollars out there have increased.

Then when you think in terms of deflation You are thinking in terms of too much dollar creation and that has decreased buying power of the dollar. Too many dollars are inflationary. If bread goes from 3.00 to ten it is only the dollars that are out there that causes the price of bread to rise. The vast portion of excess dollars end up in wage inflation which allows the cost of bread to rise.
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