Friday, October 10, 2008
To induce banks to increase their loans, the FED recently increased the money supply. This effectively lowered the nominal interest rate and encouraged the interbank loans known as the FED Funds Rate. Increasing the money supply will proportionally increase prices. The average consumer will find prices raising faster than wages. I love this cartoon, but typically, food in income inelastic meaning that income increases as a percentage greater than the demand. Food should remain affordable. This toon courtesy of the great Rodrigo at toonpool.com.