ECON 2301 Lecture Notes - Lecture 20: Money Supply, Unemployment
Document Summary
If ms > md, spending will be larger than income as people/groups attempt to get rid of the extra money they don"t want. Since income is linked to production, sales will be larger than production and inventories will be falling. If ms < md, spending will be smaller than income as people/groups attempt to acquire the extra money they want, so inventories will be rising. Experiment 2: a x% of people joined the workforce and are now unemployed. Churning (the battle over who will work for a cheaper price) will occur. This will lead to falling wages and less money in people"s pockets. People won"t be able to buy as much so inventories will rise and firms will have to make a decision - either cut production or cut prices. Since nobody has money for the goods anyways companies decide to cut prices before their competitors do allowing them to sell their goods.
