Holding Money Supply Constant, Increasing Goods and Services

Economics Economics Questions
1

I want to parallel a question to the fact that inflation does not extend equally throughout the economy (those receiving the new money first, benefit the most).

Holding the supply of money constant, we know that a 5% increase in good and services within an economy will drive down the price per unit of goods and services, yet, this too won’t be equally throughout the population. Some will gain more than others, but who will gain those who buy sooner or later?

2

Everybody gains that buys a product which was lower in price than it used to be.

I think the ‘analogy’ question is not relevant, because cantillon effects - ‘those who get it sooner than later’ - talks about new money entering, not about price increases per se. The analogy question would be: ‘how loses? Those who get their money taken away from or those who get their money taken away from later?’ Obviously; the answer is earlier, obviously, because the prices don’t adjust immediately downwards.

3

“Holding the supply of money constant, we know that a 5% increase in good and services within an economy will drive down the price per unit of goods and services, yet, this too won’t be equally throughout the population”

I think that you are making a mistake here in your thinking by making a wrong analogy. A proper analogy would be a forced deflation where government is taking money away from individuals and destroying it. Then beneficiaries would be people whose money the government was taking away later since they get to spend it while prices are falling whereas the people whose money the government took away right away cannot spend it at all.

With a constant money supply there wouldn’t be a forcefull redistribution of wealth, so your income= your marginal productivity of labor. With money creation and a forceful redistribution of wealth your income=your marginal productivity of labor +/- wealth redistribution effect.

In a constant money supply economy, you would benefit by postponing your consumption since you could get a product for cheaper. Whether an individual would take advantage of this depends on his time preference.

4

Those who buy later. That’s the supposed “deflationary spiral”.

Clayton -