Re: poly: Inflation

Damien R. Sullivan, phoenix@ugcs.caltech.edu, writes:
> How does the economy growing "too fast" lead to inflation?
> [...]
> And I've heard of a proposed "virtuous circle": higher share prices
> mean householders feel wealthier and spend more, or something, which sound
> kind of inflationary to me.

This is basically how I understand it. When times are good, people don't
feel that they have to keep as much of a "nest egg". Their desire to
hold money drops, and so more goes into circulation, causing the "velocity
of money" to increase. The increased supply of money then causes prices
to rise.

Hal
Received on Wed Jun 3 00:19:18 1998