CH. 17 CHANGES DUE TO MONETARY FACTORS 269

In the last three cases P rises and to a greaterextent, in the first instance, than can he accounted

for by any increase in - q -- 1 . Nevertheless, so long asP'>P or P>^J^, there can be no position of equili-

brium. For the increase of P' relatively to P andthe increase of P, in so far as it is due to an increasein I' - S, cause profits, and thereby stimulate entre-preneurs to improve their bids for the services ofthe factors of production. This must continue until

MiVi

0

has settled down at a higher figure, which is

in equilibrium with the new total quantity of moneyand also with values of P and P' which are enhancedrelatively to their old values in a degree corresponding

to the amount by which

MxVx

0

has been increased.

(iii.) The Problems op the Transition

We have seen that the price-level will have re-sponded to the increased (or decreased) quantity ofmoney as soon as the second term of the Funda-mental Equation is affected. Thus the effect of thenew money on prices will be rapid. But, as we havealso seen, we must not, therefore, assume that a newequilibrium has been established at this stage. Solong as entrepreneurs are enjoying windfall profits (orlosses), the position is unstable. If it is a case ofprofits, they bid against one another for the servicesof the factors of production, until the latter haverisen to a level at which costs of production and saleproceeds are again equal. If it is a case of losses, theythrow factors of production out of employment untilthe latter agree to accept a rate of remuneration atwhich the costs of production no longer exceed thesale proceeds. Only when the stimulation (or retarda-