Price levels and monetary inflation

Economics: Lesson 145

If there is no ‘price level,’ how could anyone prove that monetary inflation raises prices?

The price level is a statistic the tells the price of goods and services. The price level often fluctuates depending on how much money is in the market. When the money supply increases, prices rise. You might think that more money would make prices stay the same, or even go lower because everyone can buy more since they have more money, but it does not. The money supply is being inflated and the purchasing power of money falls.

Ludwig von Mises said to ignore the price level, but how can you ignore it if you are trying to analyze inflation. The price level can never be definite, because different prices rise and fall at different rates and different times. But it is helps in analyzing the monetary system and inflation.

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