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Flooding the market with money can lead to inflation. If there is so much money in...
Topics: Social Sciences, Economics, Inflation
Flooding the market with money can lead to inflation. If there is so much money in circulation, then a grocery store could charge $100 for an apple and no one would bat an eye. That is an extreme example but do you think that this QE has actually had an impact on prices? Have you noticed a change and can it be related back to the implementation of these policies?
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It is practically impossible for any one person to truly notice inflation at work and to know for sure that they are doing so. The reason for this is that prices rise all the time, even without serious inflation. The fact that some prices are rising does not necessarily mean that inflation is occurring. Inflation occurs when average prices rise. The typical person does not have the means to measure average prices and the typical person would have no way to determine for sure whether quantitative easing had anything to do with any changes in prices that they notice.
Let us say that I go to the grocery store and I want to know if inflation is happening. First, I have to do a serious study. I cannot simply say “oh, milk is more expensive this week. It must be inflation.” I cannot say that because I would have to systematically see if, for example, apples, lettuce, rice, chicken, and cereal have seen their prices change. I would have to figure out the changes in each and see how the average price has changed. This is practically impossible for any casual observer to do.
Now, let us say that somehow I have done a really great study and have proven that the average prices at my grocery store have gone up. Now, I will have to connect that to quantitative easing. I will have to make sure that the price of milk is up because of the easing and not, for example, because of an increase in the demand for milk or because of an increase in the price of the corn that is fed to cows.
So, there is no way that anyone can really notice prices rising, know that it is inflation, and connect it to quantitative easing. That would have to be attempted only by experienced economic researchers.
Posted by pohnpei397 on September 18, 2013 at 11:00 PM (Answer #1)
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