What causes price inflation? - economystified.blogspot.com
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economystified
Mar 23, 2012, 2:47:14 PM3/23/12
to Africa Advocacy Network
View full post at: http://economystified.blogspot.com/2012/03/inflation.html
High in the mountains, far from view, lies the tiny village
of Anytown. Anytown is an isolated location that does not trade with
any other community in the world.
The Anypeople even have their own currency: the anydollar.
Right now, there are exactly 100 anydollars in circulation.
These anydollars are dispersed among the villagers, in bank accounts,
wallets, shoe boxes buried in back yards.
There's a bakery in Anytown, and the baker charges 1
anydollar for bread. The baker uses this revenue to pay for his
flour, ovens and licenses, and to pay himself and his employees a
wage.
Everyday, an Anyperon by the name of Mr. Customer comes by
the bakery and dutifully purchases a freshly baked loaf of bread. He
munches on it on his daily commute, to his job that pays him a salary
of 10 anydollars a week.
Simple so far, right? Ok, here comes the twist.
One day, a magical fairy godmother waltzes into town, and
exactly doubles the amount of money each of the Anypeople has. She
stops everyone in the street and looks in their wallets. If there's 5
bucks in there, she gives them 5 more. If you're carrying a 20 when
she stops you, you'll be carrying 40 when she sends you back on your
way.
She goes to the bank and doubles everyone's account
balance. She digs up the hidden cash stashes, counts it, and tosses
an equivalent amount in the shoe box. With a wave of her wand, all
incomes are doubled - Mr. Customer now pulls down a cool 20 per
week.
When she's done, there's now a total of 200 anydollars in
circulation throughout Anytown.
Fairy godmother figures she's made all the Anypeople
"richer" than they were before.
Now, here's my question. Has she actually done what she
thinks she's done? Are any of the Anypeople truly richer than they
were before?
Mr. Customer finds out first hand the next morning.
After the fairy godmother's magic, Mr. Customer starts to
thinks he's a very well to do man. With a doubling of his income, he
figures he'll be eating two loaves of bread on his way to work from
here on out. He strolls through the baker's door...and is shocked at
what he finds.
- Any budding economic minds want to guess what he sees?...
Continue reading at: http://economystified.blogspot.com/2012/03/inflation.html
High in the mountains, far from view, lies the tiny village
of Anytown. Anytown is an isolated location that does not trade with
any other community in the world.
The Anypeople even have their own currency: the anydollar.
Right now, there are exactly 100 anydollars in circulation.
These anydollars are dispersed among the villagers, in bank accounts,
wallets, shoe boxes buried in back yards.
There's a bakery in Anytown, and the baker charges 1
anydollar for bread. The baker uses this revenue to pay for his
flour, ovens and licenses, and to pay himself and his employees a
wage.
Everyday, an Anyperon by the name of Mr. Customer comes by
the bakery and dutifully purchases a freshly baked loaf of bread. He
munches on it on his daily commute, to his job that pays him a salary
of 10 anydollars a week.
Simple so far, right? Ok, here comes the twist.
One day, a magical fairy godmother waltzes into town, and
exactly doubles the amount of money each of the Anypeople has. She
stops everyone in the street and looks in their wallets. If there's 5
bucks in there, she gives them 5 more. If you're carrying a 20 when
she stops you, you'll be carrying 40 when she sends you back on your
way.
She goes to the bank and doubles everyone's account
balance. She digs up the hidden cash stashes, counts it, and tosses
an equivalent amount in the shoe box. With a wave of her wand, all
incomes are doubled - Mr. Customer now pulls down a cool 20 per
week.
When she's done, there's now a total of 200 anydollars in
circulation throughout Anytown.
Fairy godmother figures she's made all the Anypeople
"richer" than they were before.
Now, here's my question. Has she actually done what she
thinks she's done? Are any of the Anypeople truly richer than they
were before?
Mr. Customer finds out first hand the next morning.
After the fairy godmother's magic, Mr. Customer starts to
thinks he's a very well to do man. With a doubling of his income, he
figures he'll be eating two loaves of bread on his way to work from
here on out. He strolls through the baker's door...and is shocked at
what he finds.
- Any budding economic minds want to guess what he sees?...
Continue reading at: http://economystified.blogspot.com/2012/03/inflation.html
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