NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/sci/econ/9844

Internet Message Format | 1993-01-25 | 2.1 KB

Path: sparky!uunet!olivea!gossip.pyramid.com!pyramid!pyrnova.mis.pyramid.com!pcollac
From: [e-mail] (Paul Collacchi)
Newsgroups: sci.econ
Subject: Re: Inflation
Message-ID: <[e-mail]>
Date: 26 Jan 93 00:48:29 GMT
References: <[e-mail]> <[e-mail]> <[e-mail]> <[e-mail]>
Sender: [e-mail]
Reply-To: [e-mail] (Paul Collacchi)
Distribution: usa
Organization: Pyramid Technologies, Mt. View, California.
Lines: 31

In article <[e-mail]>, nfs@volkl (Norbert
Schlenker) writes:
|> 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.
|>
|>

Or, rather than increasing supply, the bank loan may go toward increased
productvity -- the same supply costs less to produce.  The producer may
end up with increased profit, but maybe his competitor makes him
reduce his prices.  In that case there is price "deflation" since prices
are going down.

Paul Collacchi