If x amount of money were introduced (discretly, with no one noticing) to the market, how does the market “know” that that amount of money has been introduced (thus adjusting prices)?
In: Economics
Econ degree here.
This is a macro based question, and also this is a simplification but whatever. Basically, it’s like pouring honey into a bathtub of honey. It’ll all even out eventually, but it takes a little time. The initial infusion of cash will go to the hands of a limited number of people, which will then display an increased willingness to pay for goods, specifically more “elastic” goods. As that willingness to pay is demonstrated, prices will adjust to equalize with supply, leading to a higher price per transaction to maintain steady state until the long game where supply will actually fluctuate to accommodate the new status quo.
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