So I understand that an increase in money supply will decrease the value of the dollar. And I know that increased monetary demands for goods will increase the price. I just want to know why is it that more money makes firms increase prices on their goods
In: Economics
The main difference between hyperinflation and just very high inflation is the way in which it changes people’s behavior. If you’re in an economy with just high inflation, most of your behavioral changes will be related to your investment decisions – put your money in a savings account, buy bonds, etc instead of keeping cash at home.
In an environment with hyperinflation, it affects your more mundane choices – when you get currency, you immediately try to convert it into a different one since holding currency for even short periods of time has severe economic consequences, money becomes so cheap that people start using it for alternative purposes such as toilet or scrap paper, etc.
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