Eco 202 ch 31 monetary growth and inflation

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Eco 202 ch 31 monetary growth and inflation

  1. 1. WhenMoney Dies
  2. 2. InflationCause - Printing money faster thannew goods and services are createdEffect - Rising prices
  3. 3. Does moneycreate wealth?
  4. 4. More MoneyMake more stuff Raise prices
  5. 5. Big Mac = 10 SR 1 SR =1/10 of aBig Mac
  6. 6. =1 SR =1/10 of a Big Mac
  7. 7. Money Supply Central Bank - SAMA
  8. 8. Dr. Fahad Al MubarakChairman of the Board GovernorSaudi Arabia Monetary Agency SAMA
  9. 9. 5. Greece, Oct. 1944Highest monthly inflation: 13,800% Prices doubled every 4.3 days
  10. 10. 4. Germany, Oct. 1923Highest monthly inflation: 29,500% Prices doubled every: 3.7 days
  11. 11. A 1000 Mark banknote, over-stamped in red with"Eine Milliarde Mark" long scale (1,000,000,000 mark), issued in Germany during the hyperinflation of 1923
  12. 12. 3.Yugoslavia, Jan. 1994Highest monthly inflation: 313,000,000% Prices doubled every: 1.4 days
  13. 13. 1. Hungary 1946Highest monthly inflation: 13,600,000,000,000,000% Prices doubled every: 15.6 hours
  14. 14. 2. Zimbabwe, Nov. 2008Highest monthly inflation: 79,600,000,000% Prices doubled every: 24.7 hours
  15. 15. 1833 - 1932 $18.94 to $20.69
  16. 16. $1,600 80xLost 98.75% of value relative to gold in 80 Years
  17. 17. Money Demand Liquid Credit Cards ATMs
  18. 18. Money DemandOpportunity Cost Potential Profit
  19. 19. Quantity Theory of Money The quantity of money determines its valueMilton Friedman (1912 - 2006)
  20. 20. 2.00 Money 1.50 SupplyValue of 1.00Money 0.50 Money Demand 0 1 10 20 30 40 50 Quantity of Money
  21. 21. How to get an A on Exam 4
  22. 22. 2.00 Money 1.50 SupplyValue of 1.00Money 0.50 Money Demand 0 1 10 20 30 40 50 Quantity of Money
  23. 23. The Life of a Riyal 18 months
  24. 24. Quantity Equation M xV = P x Q M = Money V = Velocity P = Price Q = Output
  25. 25. Government Spending Tax Borrow Print
  26. 26. Inflation TaxWhen the government prints more money, anyone who has money loses wealth
  27. 27. InflationWinners - BorrowersLosers - Lenders
  28. 28. Nominal = Real + Inflation N=R+IIf you know two you can calculate the other one If N = 12 and R = 10, what is I?
  29. 29. FormulasN=R+IRR = 1÷ MMRR = 1÷ MM
  30. 30. Facts Saudi Reserve Ratio: 7% Saudi ORR: 2% Saudi Money Supply Growth: 12% Saudi Inflation Rate: 3.9%Country with recent hyperinflation: Zimbabwe Country with recent bank run: Cyprus

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