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Submitted by dan on
On page 11 of the Quarterly Update, you write: "However, inflation is basically determined by supply and demand for goods and services and China's prices are strongly influenced by global prices." No. PRICE is determined by supply and demand. Ceteris paribus, double the money supply and prices will rise with no change in supply, no change in demand. My textbook reads: "The existence of a close link between the price level and the money supply in an economy is one of the oldest and most reliable conclusions about macroeconomic behavior, having been recognized in some form for hundreds if not thousands of years. (Able, Bernanke and Croushore; p. 251) The next sentence reads: "Higher food prices and imputed rent are exerting some upward price pressure." So "imputed rent" is "strongly influenced by global prices?"