I’m trying to understand more about inflation and the saying, “any supply of money is optimal”.
Is this correct reasoning?:
1. An increase in the money supply drives down PP, temporarily.
2. As PP decreases, prices rise.
3. Eventually, as prices rise, PP reaches a point that is equivalent to where it was before the inflation.( if this part is correct, how does this happen?)
Therefore, the danger of inflation is not in higher prices per se, but in the fact that it distorts time preferences, leads to malinvestments, and unfairly benefits those who have first access to the newly created money.
