曼昆经济学原理30money-inflation课件.pptx

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1、Copyright 2004 South-WesternMoney Growth and InflationCopyright 2004 South-WesternLEARNING OBJECTIVES why inflation results from rapid growth in the money supply. the meaning of the classical dichotomy and monetary neutrality. why some countries print so much money that they experience hyperinflatio

2、n. how the nominal interest rate responds to the inflation rate. the various costs that inflation imposes on society.Copyright 2004 South-WesternThe Meaning of Money Money is the set of assets in an economy that people regularly use to buy goods and services from other people.Copyright 2004 South-We

3、sternTHE CLASSICAL THEORY OF INFLATION Inflation is an increase in the overall level of prices. Hyperinflation is an extraordinarily high rate of inflation.Copyright 2004 South-WesternTHE CLASSICAL THEORY OF INFLATION Inflation: Historical Aspects Over the past 60 years, prices have risen on average

4、 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.Copyright 2004 South-WesternTHE CLASSICAL THEORY OF INFLATION Inflation: Historical Aspec

5、ts In the 1970s prices rose by 7 percent per year. During the 1990s, prices rose at an average rate of 2 percent per year.Copyright 2004 South-WesternTHE CLASSICAL THEORY OF INFLATION The quantity theory of money is used to explain the long-run determinants of the price level and the inflation rate.

6、 Inflation is an economy-wide phenomenon that concerns the value of the economys medium of exchange. When the overall price level rises, the value of money falls.Copyright 2004 South-WesternMoney Supply, Money Demand, and Monetary Equilibrium The money supply is a policy variable that is controlled

7、by the Fed. Through instruments such as open-market operations, the Fed directly controls the quantity of money supplied.Copyright 2004 South-WesternMoney Supply, Money Demand, and Monetary Equilibrium Money demand has several determinants, including interest rates and the average level of prices in

8、 the economy.Copyright 2004 South-WesternMoney Supply, Money Demand, and Monetary Equilibrium People hold money because it is the medium of exchange. The amount of money people choose to hold depends on the prices of goods and services.Copyright 2004 South-WesternMoney Supply, Money Demand, and Mone

9、tary Equilibrium In the long run, the overall level of prices adjusts to the level at which the demand for money equals the supply.Figure 1 Money Supply, Money Demand, and the Equilibrium Price LevelCopyright 2004 South-WesternQuantity ofMoneyValue ofMoney, 1/PPrice Level, PQuantity fixedby the FedM

10、oney supply01(Low)(High)(High)(Low)1/21/43/411.3324Equilibriumvalue ofmoneyEquilibriumprice levelMoneydemandAFigure 2 The Effects of Monetary InjectionCopyright 2004 South-WesternQuantity ofMoneyValue ofMoney, 1/PPrice Level, PMoneydemand01(Low)(High)(High)(Low)1/21/43/411.3324M1MS1M2MS22. . . . dec

11、reasesthe value ofmoney . . .3. . . . andincreasesthe pricelevel.1. An increasein the moneysupply . . .ABCopyright 2004 South-WesternTHE CLASSICAL THEORY OF INFLATION The Quantity Theory of Money How the price level is determined and why it might change over time is called the quantity theory of mon

12、ey. 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.Copyright 2004 South-WesternThe Classical Dichotomy and Monetary Neutrality Nominal variables are variables measured in monetary units. Real variabl

13、es are variables measured in physical units.Copyright 2004 South-WesternThe Classical Dichotomy and Monetary Neutrality According to Hume and others, real economic variables do not change with changes in the money supply. According to the classical dichotomy, different forces influence real and nomi

14、nal variables. Changes in the money supply affect nominal variables but not real variables.Copyright 2004 South-WesternThe Classical Dichotomy and Monetary Neutrality The irrelevance of monetary changes for real variables is called monetary neutrality.Copyright 2004 South-WesternVelocity and the Qua

15、ntity Equation The velocity of money refers to the speed at which the typical dollar bill travels around the economy from wallet to wallet.Copyright 2004 South-WesternVelocity and the Quantity EquationV = (P Y)/M Where: V = velocityP = the price levelY = the quantity of outputM = the quantity of mon

16、eyCopyright 2004 South-WesternVelocity and the Quantity Equation Rewriting the equation gives the quantity equation:MV = P YCopyright 2004 South-WesternVelocity and the Quantity Equation The quantity equation relates the quantity of money (M) to the nominal value of output (P Y).Copyright 2004 South

17、-WesternVelocity and the Quantity Equation The quantity equation shows that an increase in 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.Figure 3 Nominal GDP, the

18、Quantity of Money, and the Velocity of MoneyCopyright 2004 South-WesternIndexes(1960 = 100)2,0001,00050001,500196019651970197519801985199019952000Nominal GDPVelocityM2Copyright 2004 South-WesternVelocity and the Quantity Equation The Equilibrium Price Level, Inflation Rate, and the Quantity Theory o

19、f 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.Copyright 2004 South-WesternCASE STUDY: Money and Prices during Four

20、Hyperinflations Hyperinflation is inflation that exceeds 50 percent per month. Hyperinflation occurs in some countries because the government prints too much money to pay for its spending.Figure 4 Money and Prices During Four HyperinflationsCopyright 2004 South-Western(a) Austria(b) HungaryMoney sup

21、plyPrice levelIndex(Jan. 1921 = 100)Index(July 1921 = 100)Price level100,00010,0001,00010019251924192319221921Money supply100,00010,0001,00010019251924192319221921Figure 4 Money and Prices During Four HyperinflationsCopyright 2004 South-Western(c) Germany1Index(Jan. 1921 = 100)(d) Poland100,000,000,

22、000,0001,000,00010,000,000,0001,000,000,000,000100,000,00010,000100MoneysupplyPrice level19251924192319221921Price levelMoneysupplyIndex(Jan. 1921 = 100)10010,000,000100,0001,000,00010,0001,00019251924192319221921Copyright 2004 South-WesternThe Inflation Tax When the government raises revenue by pri

23、nting money, it is 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.Copyright 2004 South-WesternThe Fisher Effect The Fisher effect refers to a one-to-one ad

24、justment of the 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.Figure 5 The Nominal Interest Rate and the Inflation RateCopyright 2004 South-Weste

25、rnPercent(per year)19601965197019751980198519901995200003691215InflationNominal interest rateCopyright 2004 South-WesternTHE COSTS OF INFLATION A Fall in Purchasing Power? Inflation does not in itself reduce peoples real purchasing power.Copyright 2004 South-WesternTHE COSTS OF INFLATION Shoeleather

26、 costs Menu costs Relative price variability Tax distortions Confusion and inconvenience Arbitrary redistribution of wealthCopyright 2004 South-WesternShoeleather Costs Shoeleather costs are the resources wasted when inflation encourages people to reduce their money holdings. Inflation reduces the r

27、eal value of money, so people have an incentive to minimize their cash holdings. Copyright 2004 South-WesternShoeleather Costs Less cash requires more frequent trips to the bank to withdraw money from interest-bearing accounts. The actual cost of reducing your money holdings is the time and convenie

28、nce you must sacrifice to keep less money on hand. Also, extra trips to the bank take time away from productive activities.Copyright 2004 South-WesternMenu Costs Menu costs are the costs of adjusting prices. During inflationary times, it is necessary to update price lists and other posted prices. Th

29、is is a resource-consuming process that takes away from other productive activities.Copyright 2004 South-WesternRelative-Price Variability and the Misallocation of Resources Inflation distorts relative prices. Consumer decisions are distorted, and markets are less able to allocate resources to their

30、 best use.Copyright 2004 South-WesternInflation-Induced Tax Distortion Inflation exaggerates the size of capital gains and increases the tax burden on this type of income. With progressive taxation, capital gains are taxed more heavily.Copyright 2004 South-WesternInflation-Induced Tax Distortion The

31、 income tax treats the nominal interest earned on savings 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.Table 1 How Inflation Raises the Tax Burden on SavingCopyright2004 South-WesternC

32、opyright 2004 South-WesternConfusion and Inconvenience When the Fed increases the money supply and creates inflation, 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 com

33、pare real revenues, costs, and profits over time.Copyright 2004 South-WesternA Special Cost of Unexpected Inflation: Arbitrary Redistribution of Wealth Unexpected inflation redistributes wealth among the population in a way that has nothing to do with either merit or need. These redistributions occu

34、r because many loans in the economy are specified in terms of the unit of accountmoney.Copyright 2004 South-WesternSummary The overall level of prices in an economy adjusts to bring money supply and money demand into balance. When the central bank increases the supply of money, it causes the price l

35、evel to rise. Persistent growth in the quantity of money supplied leads to continuing inflation.Copyright 2004 South-WesternSummary The principle of money neutrality asserts that changes in the quantity of money influence nominal variables but not real variables. A government can pay for its spendin

36、g simply by printing more money. This can result in an “inflation tax” and hyperinflation.Copyright 2004 South-WesternSummary According to the Fisher effect, when the inflation rate rises, the nominal interest rate rises by the same amount, and the real interest rate stays the same. Many people thin

37、k 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.Copyright 2004 South-WesternSummary Economists have identified six costs of inflation: Shoeleather costs Menu costs Increased variability of relative p

38、rices Unintended tax liability changes Confusion and inconvenience Arbitrary redistributions of wealthCopyright 2004 South-WesternSummary When banks loan out their deposits, they increase the quantity of money in the economy. Because the Fed cannot control the amount bankers choose to lend or the amount households choose to deposit in banks, the Feds control of the money supply is imperfect.