Invalid Demand and Prices Could Go Down...

Modi government has banned the exchange of Rs 500 and 1000 notes to curb the black money or the shadow economy and counterfeit currency menace the Indian-economy is facing, which is expected to have a long-run effect on the demand and supply as well as the prices and unemployment within the economy. The step is likely to reduce the amount of money that has entered the economy through wrong channels like tax-avoidance and fake currency by the neighbors to sponsor terrorism. This is the undesirable-money that is coming into the economy for destabilizing it and not good for the country in terms of demand/supply and prices or inflation. The black-money is often turned into other investments and is often hoarded under the mattresses. This is already known that the magnitude of black-money within the the economy is far greater than the black-money that has been kept in the foreign-economies to evade tax. The decision by the government would rule out the possibility to trade in other investment asset-classes like gold, land and property and their demand would go down… In another way it would reduce the demand for everything that could be purchased with the black money which means overall demand in the economy could go down with the decision to remove the old 500 and 1000 rupee notes from circulation. The measure could increase the real value of money in the economy because now money is less which means demand and prices would go down. The relative quantity of money would go down compared to the goods which would push down demand and prices. However, the government has reduced the number of notes in big cash transaction. Nonetheless, the more use of debit or credit cards in the transactions would too help to account for the source of money and verify whether the money is not unaccounted and prior taxes have been paid… The decision to cut back on the black-money should benefit everybody in the same way in terms of the value of money which could go up with lower demand and prices, except black-money would go out of the market… It would increase real wages and income and wealth… Lower prices increase demand and spending – consumption and investment – and the economic-growth-rate…