NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9839

Text File | 1993-01-25 | 1.6 KB | 35 lines

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Path: sparky!uunet!zaphod.mps.ohio-state.edu!pacific.mps.ohio-state.edu!linac!att!princeton!volkl!nfs
From: nfs@volkl (Norbert Schlenker)
Subject: Re: Inflation
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Date: Mon, 25 Jan 1993 16:18:54 GMT
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In article <[e-mail]> [e-mail] (William B Dwinnell) writes:
>
>Okay, Norbert, let's say that we live in an economy where there is a bank
>which is willing to pay 5% interest on money deposited. If anyone at
>all deposits money in that bank, his nominal wealth will increase by
>5% iunxx in one year, right?  Let's say someone else does not. The depositor
>now has 5% more nominal wealth to play with than the non-depositor,
>and is thus more able to compete in the market than he was before, whreas
>the non-edpositor hasn't changed, in terms of nominal wealth. The
>demand curve will shift, moving the quilibrium point, dragging prices
>up with it. Thsixxx This is what I "know".  Where have I strayed?

If the bank pays a person 5% interest, it's because the bank is able to
lend the money for at least 5% itself.  If it lends that money for a
productive purpose, the supply curve shifts too.  The bank depositor bids
for more; the producer supplies more.  There is no a priori reason to
believe that inflation will result from the shifting of both curves.

Norbert
[e-mail]