Question about inflation?

I do an exercise in my class that gets the idea across through car salesmen. Their job is to take very penny they can get. Increasing the money supply, even secretly, will reduce the interest rate, which is a price itself. Since money is less scarce, even if it is a "secret," it will quickly become apparent as interest rates fall. A short run drop in rates would make more money available for loans. The car dealers, who are very skilled at mopping up every penny end up grabbing the extra money because the customer can afford a higher principal balance on a loan because the lower rate permits higher sales prices for the same payment. So even though the buyer has no additional money, the same payment supports a higher sales price.

In doing this, the price of cars will increase for no reason at all, except there is more money in the system. The car dealer will then pass this extra money in commissions, creating pay raises, and to the car companies through the purchase of more cars. Of course this is happening with varying degrees of speed throughout the economy. Some places will change slowly, such as restaurants which change their menus slowly, or laundromats which may go years before increasing prices, but others, such as gas stations, car dealers and home construction firms will move prices almost immediately.

Prices, including prices such as interest rates, reveal all secrets to the extent they reflect changes in scarcity.

They would only know to raise their prices, if they experienced an increase in demand.

They will know that it will be a bubble when they can borrow money from the banks more cheaply.