Repressed Inflation and Second Economy under Central Planning
Repressed inflation arises under central planning when excess demand on the consumer goods market does not lead to appropriate price increases. If prices in the second economy are allowed to increase the excess demand would seem to disappear. In reality this process would only partly take place and “speculative” money balances for future purchases in the first economy would arise. The accumulation of these balances is a rising function of the price-difference (between the second and first economy) ratio and of the probability of buying on the first market in the future, and a falling function of the pure rate of time preference.
KeywordsTime Preference Consumer Good Excess Demand Shadow Economy Money Balance
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