Generally, if you increase the supply of money you increase the price of goods and services. The graphs below show this general trend. (Double click to see the graphs in detail.)
Adjusted Monetary Base Not Seasonally Adjusted
From 1-1-1918 to 5-1-2010 in billions of dollars
Think of this as money that is in the economic system such as cash and credit cards.
Consumer Price Index for All Urban Consumers
From 1-1913 to 5-2010
Think of this as the level of prices to buy things like video games and pizza.
You may hear reports on the news prices are declining even though the money supply is going up. When prices go up this is called inflation and when prices go down it is called deflation.
Prices are temporarily going down or deflation because the economy, people and businesses that purchase and produce goods and services are in a very serious decline and the true unemployment rate or people unable to find jobs is probably at depression levels. The last time there was deflation was during the Great Depression.
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