Testing Theories Of Inflation
Yet we also have a situation with high unemployment and low capacity utilization in America and most other countries, something which according to Keynesian theory should lead to deflation (or at least disinflation).
This leads former Fed governor Laurence Meyer to talk of how the near future development of price inflation will provide a test of theories of inflation, as the two theories have opposite prediction of how it will develop.
Such tests have however already been performed. As I pointed out yesterday, Zimbabwe has had extremely high money supply growth rate while also having extremely high unemployment (60 to 80%) and extremely low capacity utilization (20%). The result was an inflation rate of 231,000,000%.