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When there is an increase in price level, real money supply decreases and raises interest rates.

In a similar situation, when money supply decreases, interest rates increases, consumption decreases, demand is reduced and price levels decreases.

In both cases, money supply decreased, yet the price levels have conflicting eventualities, why?

Also, if you continue down the analysis, it goes a full cycle. Does this mean that inflation is self-defeating since it eventually cancels itself out?

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    $\begingroup$ What are your assumptions of your model? $\endgroup$ – Xenidia May 4 '17 at 13:42
  • $\begingroup$ @Xenidia simply in general. Markets always clear, no complications. Just intuitive thinking $\endgroup$ – MH.Q May 4 '17 at 19:08
  • $\begingroup$ Re: "When there is an increase in price level, real money supply decreases and raises interest rates." - where did you get that set of ideas from? Makes no sense to me at all. $\endgroup$ – Mick May 5 '17 at 7:28
  • $\begingroup$ internationalecon.com/Finance/Fch40/F40-10.php @Mick $\endgroup$ – MH.Q May 5 '17 at 13:06
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In both the cases mentioned above you see that decrease in money supply leads to fall in prices. There is no conflict.

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