Money Growth and inflation

Содержание

Слайд 2

The Meaning of Money

Money is the set of assets in an economy

The Meaning of Money Money is the set of assets in an
that people regularly use to buy goods and services from other people.

Слайд 3

THE CLASSICAL THEORY OF INFLATION

Inflation is an increase in the overall level

THE CLASSICAL THEORY OF INFLATION Inflation is an increase in the overall
of prices.
Hyperinflation is an extraordinarily high rate of inflation.

Слайд 4

THE CLASSICAL THEORY OF INFLATION

Inflation: Historical Aspects
Over the past 60 years, prices

THE CLASSICAL THEORY OF INFLATION Inflation: Historical Aspects Over the past 60
have risen on average about 5 percent per year.
Deflation, meaning decreasing average prices, occurred in the U.S. in the nineteenth century.
Hyperinflation refers to high rates of inflation such as Germany experienced in the 1920s.

Слайд 5

THE CLASSICAL THEORY OF INFLATION

Inflation: Historical Aspects
In the 1970s prices rose by

THE CLASSICAL THEORY OF INFLATION Inflation: Historical Aspects In the 1970s prices
7 percent per year.
During the 1990s, prices rose at an average rate of 2 percent per year.

Слайд 6

THE CLASSICAL THEORY OF INFLATION

The quantity theory of money is used to

THE CLASSICAL THEORY OF INFLATION The quantity theory of money is used
explain the long-run determinants of the price level and the inflation rate.
Inflation is an economy-wide phenomenon that concerns the value of the economy’s medium of exchange.
When the overall price level rises, the value of money falls.

Слайд 7

Money Supply, Money Demand, and Monetary Equilibrium

The money supply is a policy

Money Supply, Money Demand, and Monetary Equilibrium The money supply is a
variable that is controlled by the Fed.
Through instruments such as open-market operations, the Fed directly controls the quantity of money supplied.

Слайд 8

Money Supply, Money Demand, and Monetary Equilibrium

Money demand has several determinants, including

Money Supply, Money Demand, and Monetary Equilibrium Money demand has several determinants,
interest rates and the average level of prices in the economy.

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Money Supply, Money Demand, and Monetary Equilibrium

People hold money because it is

Money Supply, Money Demand, and Monetary Equilibrium People hold money because it
the medium of exchange.
The amount of money people choose to hold depends on the prices of goods and services.

Слайд 10

Money Supply, Money Demand, and Monetary Equilibrium

In the long run, the overall

Money Supply, Money Demand, and Monetary Equilibrium In the long run, the
level of prices adjusts to the level at which the demand for money equals the supply.

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Figure 1 Money Supply, Money Demand, and the Equilibrium Price Level

Copyright ©

Figure 1 Money Supply, Money Demand, and the Equilibrium Price Level Copyright
2004 South-Western

Quantity of

Money

Value of

Money,

1

/

P

Price

Level,

P

0

1

(Low)

(High)

(High)

(Low)

1

/

2

1

/

4

3

/

4

1

1.33

2

4

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Figure 2 The Effects of Monetary Injection

Copyright © 2004 South-Western

Quantity of

Money

Value of

Money,

Figure 2 The Effects of Monetary Injection Copyright © 2004 South-Western Quantity

1

/

P

Price

Level,

P

0

1

(Low)

(High)

(High)

(Low)

1

/

2

1

/

4

3

/

4

1

1.33

2

4

Слайд 13

THE CLASSICAL THEORY OF INFLATION

The Quantity Theory of Money
How the price level

THE CLASSICAL THEORY OF INFLATION The Quantity Theory of Money How the
is determined and why it might change over time is called the quantity theory of money.
The quantity of money available in the economy determines the value of money.
The primary cause of inflation is the growth in the quantity of money.

Слайд 14

The Classical Dichotomy and Monetary Neutrality

Nominal variables are variables measured in monetary

The Classical Dichotomy and Monetary Neutrality Nominal variables are variables measured in
units.
Real variables are variables measured in physical units.

Слайд 15

The Classical Dichotomy and Monetary Neutrality

According to Hume and others, real economic

The Classical Dichotomy and Monetary Neutrality According to Hume and others, real
variables do not change with changes in the money supply.
According to the classical dichotomy, different forces influence real and nominal variables.
Changes in the money supply affect nominal variables but not real variables.

Слайд 16

The Classical Dichotomy and Monetary Neutrality

The irrelevance of monetary changes for real

The Classical Dichotomy and Monetary Neutrality The irrelevance of monetary changes for
variables is called monetary neutrality.

Слайд 17

Velocity and the Quantity Equation

The velocity of money refers to the speed

Velocity and the Quantity Equation The velocity of money refers to the
at which the typical dollar bill travels around the economy from wallet to wallet.

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Velocity and the Quantity Equation

V = (P × Y)/M
Where: V = velocity
P

Velocity and the Quantity Equation V = (P × Y)/M Where: V
= the price level
Y = the quantity of output
M = the quantity of money

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Velocity and the Quantity Equation

Rewriting the equation gives the quantity equation:
M ×

Velocity and the Quantity Equation Rewriting the equation gives the quantity equation:
V = P × Y

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Velocity and the Quantity Equation

The quantity equation relates the quantity of money

Velocity and the Quantity Equation The quantity equation relates the quantity of
(M) to the nominal value of output (P × Y).

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Velocity and the Quantity Equation

The quantity equation shows that an increase in

Velocity and the Quantity Equation The quantity equation shows that an increase
the quantity of money in an economy must be reflected in one of three other variables:
the price level must rise,
the quantity of output must rise, or
the velocity of money must fall.

Слайд 22

Figure 3 Nominal GDP, the Quantity of Money, and the Velocity of

Figure 3 Nominal GDP, the Quantity of Money, and the Velocity of
Money

Copyright © 2004 South-Western

Indexes

(1960 = 100)

2,000

1,000

500

0

1,500

1960

1965

1970

1975

1980

1985

1990

1995

2000

Nominal GDP

Velocity

M2

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Velocity and the Quantity Equation

The Equilibrium Price Level, Inflation Rate, and the

Velocity and the Quantity Equation The Equilibrium Price Level, Inflation Rate, and
Quantity Theory of Money
The velocity of money is relatively stable over time.
When the Fed changes the quantity of money, it causes proportionate changes in the nominal value of output (P × Y).
Because money is neutral, money does not affect output.

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CASE STUDY: Money and Prices during Four Hyperinflations

Hyperinflation is inflation that exceeds

CASE STUDY: Money and Prices during Four Hyperinflations Hyperinflation is inflation that
50 percent per month.
Hyperinflation occurs in some countries because the government prints too much money to pay for its spending.

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Figure 4 Money and Prices During Four Hyperinflations

Copyright © 2004 South-Western

(a) Austria

(b)

Figure 4 Money and Prices During Four Hyperinflations Copyright © 2004 South-Western
Hungary

Money supply

Price level

Index

(Jan. 1921 = 100)

Index

(July 1921 = 100)

Price level

100,000

10,000

1,000

100

1925

1924

1923

1922

1921

Money supply

100,000

10,000

1,000

100

1925

1924

1923

1922

1921

Слайд 26

Figure 4 Money and Prices During Four Hyperinflations

Copyright © 2004 South-Western

(c) Germany

1

Index

(Jan.

Figure 4 Money and Prices During Four Hyperinflations Copyright © 2004 South-Western
1921 = 100)

(d) Poland

100,000,000,000,000

1,000,000

10,000,000,000

1,000,000,000,000

100,000,000

10,000

100

Price level

1925

1924

1923

1922

1921

Price level

Index

(Jan. 1921 = 100)

100

10,000,000

100,000

1,000,000

10,000

1,000

1925

1924

1923

1922

1921

Слайд 27

The Inflation Tax

When the government raises revenue by printing money, it is

The Inflation Tax When the government raises revenue by printing money, it
said to levy an inflation tax.
An inflation tax is like a tax on everyone who holds money.
The inflation ends when the government institutes fiscal reforms such as cuts in government spending.

Слайд 28

Владимир Владимирович™ ☺

Вторник, 31 января 2006 г. 13:59:20
Однажды Владимир Владимирович™ Путин давал

Владимир Владимирович™ ☺ Вторник, 31 января 2006 г. 13:59:20 Однажды Владимир Владимирович™
свою ежегодную большую пресс-конференцию в Круглом зале Кремля.  - Канал ТВЦ, - сказал мужчина, похожий на банкира, - Вот правительство говорит, что деньги могут породить инфляцию. В то же время нам не хватает денег. Нет ли тут какого-то противоречия? - Нету, - сказал Владимир Владимирович™, - Денег и правда не хватает, но мы не можем увеличить их количество. Это как с водкой. Выпил – похмелье. Чтобы снять похмелье – выпил снова. И снова похмелье. И снова выпил. И каждый раз больше. Потом смотришь – цирроз. Надо в какой-то момент остановиться и не пить. Да, водки будет не хватать. Но увеличить ее количество нельзя, хотя и можешь себе позволить. На таком примере понятно? Вижу, что понятно. Давайте следующий вопрос.  Постоянный адрес этой истории

Слайд 29

The Fisher Effect

The Fisher effect refers to a one-to-one adjustment of the

The Fisher Effect The Fisher effect refers to a one-to-one adjustment of
nominal interest rate to the inflation rate.
According to the Fisher effect, when the rate of inflation rises, the nominal interest rate rises by the same amount.
The real interest rate stays the same.

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Figure 5 The Nominal Interest Rate and the Inflation Rate

Copyright © 2004

Figure 5 The Nominal Interest Rate and the Inflation Rate Copyright ©
South-Western

Percent

(per year)

1960

1965

1970

1975

1980

1985

1990

1995

2000

0

3

6

9

12

15

Слайд 31

THE COSTS OF INFLATION

A Fall in Purchasing Power?
Inflation does not in itself

THE COSTS OF INFLATION A Fall in Purchasing Power? Inflation does not
reduce people’s real purchasing power.

Слайд 32

THE COSTS OF INFLATION

Shoeleather costs
Menu costs
Relative price variability
Tax distortions
Confusion and inconvenience
Arbitrary redistribution

THE COSTS OF INFLATION Shoeleather costs Menu costs Relative price variability Tax
of wealth

Слайд 33

Shoeleather Costs

Shoeleather costs are the resources wasted when inflation encourages people to

Shoeleather Costs Shoeleather costs are the resources wasted when inflation encourages people
reduce their money holdings.
Inflation reduces the real value of money, so people have an incentive to minimize their cash holdings.

Слайд 34

Shoeleather Costs

Less cash requires more frequent trips to the bank to withdraw

Shoeleather Costs Less cash requires more frequent trips to the bank to
money from interest-bearing accounts.
The actual cost of reducing your money holdings is the time and convenience you must sacrifice to keep less money on hand.
Also, extra trips to the bank take time away from productive activities.

Слайд 35

Menu Costs

Menu costs are the costs of adjusting prices.
During inflationary times, it

Menu Costs Menu costs are the costs of adjusting prices. During inflationary
is necessary to update price lists and other posted prices.
This is a resource-consuming process that takes away from other productive activities.

Слайд 36

Relative-Price Variability and the Misallocation of Resources

Inflation distorts relative prices.
Consumer decisions

Relative-Price Variability and the Misallocation of Resources Inflation distorts relative prices. Consumer
are distorted, and markets are less able to allocate resources to their best use.

Слайд 37

Inflation-Induced Tax Distortion

Inflation exaggerates the size of capital gains and increases the

Inflation-Induced Tax Distortion Inflation exaggerates the size of capital gains and increases
tax burden on this type of income.
With progressive taxation, capital gains are taxed more heavily.

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Inflation-Induced Tax Distortion

The income tax treats the nominal interest earned on savings

Inflation-Induced Tax Distortion The income tax treats the nominal interest earned on
as income, even though part of the nominal interest rate merely compensates for inflation.
The after-tax real interest rate falls, making saving less attractive.

Слайд 39

Table 1 How Inflation Raises the Tax Burden on Saving

Copyright©2004 South-Western

Table 1 How Inflation Raises the Tax Burden on Saving Copyright©2004 South-Western

Слайд 40

Confusion and Inconvenience

When the Fed increases the money supply and creates inflation,

Confusion and Inconvenience When the Fed increases the money supply and creates
it erodes the real value of the unit of account.
Inflation causes dollars at different times to have different real values.
Therefore, with rising prices, it is more difficult to compare real revenues, costs, and profits over time.

Слайд 41

A Special Cost of Unexpected Inflation: Arbitrary Redistribution of Wealth

Unexpected inflation redistributes

A Special Cost of Unexpected Inflation: Arbitrary Redistribution of Wealth Unexpected inflation
wealth among the population in a way that has nothing to do with either merit or need.
These redistributions occur because many loans in the economy are specified in terms of the unit of account—money.

Слайд 42

Summary

The overall level of prices in an economy adjusts to bring money

Summary The overall level of prices in an economy adjusts to bring
supply and money demand into balance.
When the central bank increases the supply of money, it causes the price level to rise.
Persistent growth in the quantity of money supplied leads to continuing inflation.

Слайд 43

Summary

The principle of money neutrality asserts that changes in the quantity of

Summary The principle of money neutrality asserts that changes in the quantity
money influence nominal variables but not real variables.
A government can pay for its spending simply by printing more money.
This can result in an “inflation tax” and hyperinflation.

Слайд 44

Summary

According to the Fisher effect, when the inflation rate rises, the nominal

Summary According to the Fisher effect, when the inflation rate rises, the
interest rate rises by the same amount, and the real interest rate stays the same.
Many people think that inflation makes them poorer because it raises the cost of what they buy.
This view is a fallacy because inflation also raises nominal incomes.

Слайд 45

Summary

Economists have identified six costs of inflation:
Shoeleather costs
Menu costs
Increased variability of relative

Summary Economists have identified six costs of inflation: Shoeleather costs Menu costs
prices
Unintended tax liability changes
Confusion and inconvenience
Arbitrary redistributions of wealth
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