chapter  Lecture 21
23 Pages

The Hyperinflationary Case

A hyperinflationary case of the aggregate price-production model prices will increase until the limited quantity of available money begins to affect the cycle. Except at those points along the economic orbit which lie along the "money shortage line", the short-term rate of interest in the model will be zero, since each manufacturer will have a sufficient sum of money to carry out all his operations. That Keynes takes the determination of prices from, so that wage-costs are a primary factor and monetary effects operate only indirectly through the rate of interest and the level of investment, appears plainly enough in Keynes' discussion of the response of prices to changing monetary conditions, General Theory. The mathematical models of money-price formation contain the implicit assumption that the market in every commodity is symmetrical and imperfect. Eventually the rise of prices will be blocked by the finiteness of the money supply, and a price-equilibrium will be reached.