Hypothetical Inflation question

Factual Questions
1

OK, say that the US (or Canada, or any other country with a similar type economy), for whatever reason prints a lot more money to the point where inflation would occur.

Now, say that nobody raises their prices because of this. There’s more money in circulation, but prices stay the same.

What happens? I know that for a lot of items, if production couldn’t be increased, then there would be a shortage, because if everybody had more money, demand for a lot of items could outweigh supply.

But what else would happen?

2

When you say “nobody raises their prices”, do you mean that stores don’t raise their prices, or nobody does? In the first case, the stores rapidly sell out and a thriving black market results. That’s what always happens when price controls are implemented, and your hypothetical essentially implements a price control.

If you really mean that nobody raises their prices, not even private sellers in the black market, then I guess whatever you want to happen happens, since you’re basically claiming that people will go against human nature and exchange goods for money that’s very obviously not worth as much as they’re acting like it is. Presumably some combination of barter, lottery, or central authority would be set up for distributing goods, which would probably be a lot less efficient than the black market would have been.

3

Thank you for answering my question. Your answer raises another question for me, but I’ll save it for another day.:slight_smile:

4

Your question is a little confusing, but if I understand it, there are two ways this could happen:

  1. The relationship between monetary aggregates could shift rather dramatically. Printed currency is a small part of broader, transaction-facilitating money. Usually there is a stable-ish relationship between the two, but it can break down - indeed it seems to have in the US at present. The result is a build-up of liquidity in the banking system without an increase in anyone’s purchasing power.

  2. The velocity of money could decrease. The nominal value of transactions is price*volume. This must at all times equal the quantity of of money * its velocity.

But if your question is what happens if the apparent purchasing power gets into people’s hands but for some unknown reasons firms don’t raise their prices, I guess the answer is queues.