Out of interest, let's say there's an economic boom which increases the demand for money at any level i.e. the money demand curve shifts to the right. At the same time the central bank holds the supply fixed, this would imply that there is deflation. The MD curve is to the right. MS1 is fixed. The new equilibrium will be is on MS1 somewhere above A. Ergo a boom has led to deflation. That seems totally perverse. Surely an increase in the demand for money should lead to higher prices. Can someone correct my thought process. I can understand shifts of MS but not MD. This model seems totally counter intuitive and NO SOURCE that I've found deals with shifts in the MD. They all do this standard MS1 - MS2 thing! Cheers.
Thanks brother for your videooo
Out of interest, let's say there's an economic boom which increases the demand for money at any level i.e. the money demand curve shifts to the right. At the same time the central bank holds the supply fixed, this would imply that there is deflation. The MD curve is to the right. MS1 is fixed. The new equilibrium will be is on MS1 somewhere above A.
Ergo a boom has led to deflation.
That seems totally perverse. Surely an increase in the demand for money should lead to higher prices. Can someone correct my thought process. I can understand shifts of MS but not MD. This model seems totally counter intuitive and NO SOURCE that I've found deals with shifts in the MD. They all do this standard MS1 - MS2 thing!
Cheers.
Shouldn't price level lag quantity of money