▲ | phyzix5761 4 days ago | |
The $15k is being transferred from entity A to entity B. Both entities are not spending the $15k so there wouldn't be any effect on inflation. If you printed an extra $15k then that would cause inflation because both entity A and entity B would be spending $15k. Inflation, which means a steady rise in prices overall, happens only when the total money supply in an economy grows. This increase in money, often called "printing money," can be physical cash or digital money created through lending and government policies. Without more money in the system, if prices go up in one area, they have to go down somewhere else because the total money available limits how much can be spent on everything. Sometimes prices rise temporarily due to supply problems, but that is not true inflation unless there is more money chasing goods. This key idea, highlighted by Milton Friedman in his Nobel Prize winning work, shows that lasting inflation is mainly caused by increases in the money supply. | ||
▲ | surfaceofthesun 4 days ago | parent | next [-] | |
This completely ignores Friedman's concept of the velocity of money (MV = PY). If that $15k is being saved by someone versus immediately spent, that has a different effect. A transfer isn’t neutral if the two parties have different propensities to consume (marginal propensity to consume). Similarly how quickly and what the money is being spent on will have an effect. Most money (M2) is not created directly by the treasury but rather indirectly from large banks lending against fractional deposits. This is money created on the balance sheets of banks but has real effect on the economy. | ||
▲ | 4 days ago | parent | prev [-] | |
[deleted] |