Example: Imagine you live on an island with ten pineapples and on your island the total money supply is $10.00. If we “priced” the pineapples, each one would have a hypothetical cost of $1.00 per pineapple. Now suppose Mr. Bernanke was the central banker of your island and printed an additional $10.00 which ended up in your money supply. The number of pineapples on the island is still ten, but now you have $20.00 total in your money supply. The new cost per pineapple is now $2.00. This increase in the price level is defined as inflation, where Yogi Berra aptly noted, “A nickel ain’t worth a dime anymore.” The number of pineapples remains unchanged but money supply has increased. This harms the savers and citizens of a country. Suppose I live on this island but I only have $6.00 in my wallet. Pre-Bernanke I could purchase six pineapples but post-Bernanke I can only afford three. Bernanke took $3.00 of purchasing power away from me (this is a hidden tax)!”
Posted by ikennb on July 18, 2010 | 0 notes
Example: Imagine you live on an island with ten pineapples and on your island the total money supply is $10.00. If we “priced” the pineapples, each one would have a hypothetical cost of $1.00 per pineapple. Now suppose Mr. Bernanke was the central banker of your island and printed an additional $10.00 which ended up in your money supply. The number of pineapples on the island is still ten, but now you have $20.00 total in your money supply. The new cost per pineapple is now $2.00. This increase in the price level is defined as inflation, where Yogi Berra aptly noted, “A nickel ain’t worth a dime anymore.” The number of pineapples remains unchanged but money supply has increased. This harms the savers and citizens of a country. Suppose I live on this island but I only have $6.00 in my wallet. Pre-Bernanke I could purchase six pineapples but post-Bernanke I can only afford three. Bernanke took $3.00 of purchasing power away from me (this is a hidden tax)!”
