If the money supply in the/in an economy increases, why does the average price of goods increase?

Question

I have been reading this document...

http://austrianeco.blogspot.com/2008/02/inflation-part-22.html

(parts 1 & 2) in an attempt to understand inflation and how the Federal Reserve Bank affects inflation. The document states that "If the growth in money supply exceeds the growth in the real economy, then the average level of prices will rise, and vice versa".

My questions are as follows...

1. Why is this? Why do the prices rise?

2. What does the writer mean when they refer to "the real economy"?

Before you answer, please note that I do not have a financial or business background so I would appreciate you avoiding the use of any obscure jargon without defining such terms. Also, I am not writing this question casually; I have a strong desire to understand inflation and the fractional reserve banking system. I would appreciate a thought out and clearly explained answer. If you cannot be bothered to supply one, I would appreciate you not bothering to post an answer.

Answer 1

Prices rise because of this general law of wealth named: Law of Conservation of wealth. Please study Law of Conservation of Mass and Law of Conservation of Energy to understand this law better. At any given point of time,

Value of goods + services = Quantity (or value) of money.

If money increases, without addition to quantity of goods and services, prices rise. Unfortunately no one defined economics as study of nature, properties, composition, laws and classification of wealth. No one studied wealth the way chemists studied matter.

Answer 2

When demand goes up and supply stays constant, prices must rise or shortages will result. so in essence you have to pay more because other people want it too.

either way

Shoplift wherever possible.

Companies factor the cost of shoplifting into their prices, so if you don't steal, they're effectively stealing from you.

Answer 3

Money is just a representation of the goods in the economy! It was only created to eliminate the coincidence of needs for easy trade.  Coincidence of needs is what happens when there is no money, the best way to explain it is through example, let's say you want a steak and you offer him a cell phone, but the butcher will only give you one for 100 gumballs, now you have to go to the gumball man, but he wants a checkers board for the gumballs, you go to the checkerboard maker and he takes your cell phone, then you must go back and trade every single person...HUGE HASSLE!  Money is a medium of exchange so that you can do one on one transactions. Anyways to explain the rising prices think about this example: if there are 10 apples and $10 in one economy, then $1 represents 1 apple.  Now if you raise the money supply to $20 and keep only 10 apples in the economy, then $2 will represent 1 apple.  See? Raising money supply increased the average price of the good! This is just a basic example, but its the same way in our economy.  The "real economy" refers to an economy whose prices are adjusted for inflation. Every year there tends to be inflation (usually only 1-3% in a stable economy), and if you correct the prices for this inflation, you get a grasp of the real economy, think about it this way, if you had $20 in 1920 you could probably buy a nice suit, in 2008, $20 MIGHT buy you a nice shirt, there has been inflation, and it has added up over the years, but is our economy better than it was in 1920? Yes! After adjusting for inflation, you can still see that more people have more money back then and the real economy has improved.