Some people believe that inflation is caused by an increase in the money supply when the banks
print more notes engage in fractional reserve lending. Is this correct?
As I understand it, when there is more available money in the market, the price of goods will increase. But will a normal merchant acknowledge the increase of money supply and raise prices immediately? I posit that, in the short run, merchants won't increase prices in response to increased money supply.
So, why does increased money supply lead to price inflation?
Specifically, after the banks print more notes, where will the money be distributed first? Who will be the first one to have a need to rise their price? Does the enterprise borrow more money and spend more money in the market, and then the merchant increase their price when there are a lots of order?