If we print more money, the price will rise so much that we don’t have a better price than before. In order to understand the reasons, we think this is not true, and when we increase the money supply significantly, the price will not increase too much. Consider the situation in the United States. Let us assume that the United States has decided to increase the money supply by mailing an envelope full of money to every man, woman and child. What do people do with this money? Some of these funds will be saved, and some may be used to repay debts such as mortgages and credit cards, but most of them will be spent. You won’t be the only one who bought the Xbox. This has caused problems for Wal-Mart. Do they keep the price the same, don’t have enough Xbox to sell to the person you want, or raise the price? The obvious decision is to raise the price. If Wal-Mart (and everyone else) decides to raise prices immediately, we will have massive inflation, and our funds are now devalued. Since we are trying to argue that this will not happen, we assume that Wal-Mart and other retailers will not increase the price of the Xbox. As the price of the Xbox remains stable, the Xbox supply must meet this increased demand. If there is a shortage, the price will definitely rise, because consumers who are denied access to the Xbox will offer a price that far exceeds the price previously charged by Wal-Mart. Since the retail price of the Xbox will not rise, we need the Xbox manufacturer, Microsoft, to increase production to meet this growing demand. Of course, in some industries, this is technically impossible because there are capacity limitations (mechanical, factory space) that limit how much production can be increased in a short period of time. We also need Microsoft not to charge more for each system’s retailers, because this will cause Wal-Mart to increase the price they charge consumers, because we are trying to create a scenario where the Xbox price will not rise. According to this logic, we still need to produce Xbox unit costs will not rise. This will be difficult because Microsoft’s companies that buy parts from it will face the same pressures and incentives to increase the price of Wal-Mart and Microsoft. If Microsoft wants to produce more Xboxes, they will need more hours, and getting these hours won’t add too much (if any) to their unit cost, otherwise they will be forced to raise the price they charge the retailer. The wage is mainly the price; the hourly wage is the price charged by one person for one hour of labor. The hourly wage cannot be maintained at the current level. Some of the increased labor may come from overtime employees. This obviously increases the cost. If the worker works 12 hours a day instead of working, the worker (hourly) may not work as efficiently. Many companies need to hire additional labor. This demand for additional labor will lead to higher wages as companies raise wage rates to attract workers to work for the company. They must also induce existing workers not to retire. If you are given an envelope full of cash, do you think you are working time or less working time? Labor market pressures require wages to increase, so product costs must also increase.