Can excess demand or supply affect the general price level?
No doubt a shortage of iPhones, flat-screen televisions or hotel rooms in New York City would drive up the price of all three and, to some, this would be inflationary. This theory breaks down because it assumes an increase in income. Without that, if demand for certain products is pushing prices up, demand in other areas must be falling, and in the process, driving other prices down. Prices at the pump for the average individual have tripled in recent years. That means that the same individual would have a great deal less income to demand other products previously accessible. In sum, the net effect of demand-driven inflation is zero. Demand drives up relative (real) prices for specific items but not necessarily money (nominal) prices. Is supply growth deflationary? Conversely, while still at the Fed, and in testimony before the Joint Economic Committee, Alan Greenspan said the addition of over 100 million educated workers to the global workforce from the former Soviet Union, China, and
