Macro 11

2. Lecture 11
Macroeconomics

5. Inflation and the
Quantity Theory of
Money
Chapter 12

6. Good Money
Bad Money

7. 100+ Currencies

19. one
unit
of
this
will buy ___ units of that

20. What is Money?
Trust

22. If money loses trust
It loses its value

25. Recipe for Disaster
Print Money
Set Price Ceilings

29. What is Money?
Medium of Exchange
Store ofValue
Unit of Account

30. Medium of Exchange
Buyers give to sellers
Sellers accept from
buyers

31. Unit of Account
Measurement
Prices
Debt

32. Store of Value
Trading time for time
Today for tomorrow
Tomorrow for today
Earn - Save - Spend

35. When you have lines waiting to buy your
product, you can do two things:
make more, or raise prices

39. Prices
Current
Constant

40. Inflation
Cause:
Printing money faster than
making goods and services
Effect:
Rising prices

41. Nominal
vs.
Real

42. P2 - P1
P1
x 100
Inflation Rate

43. Price Level
Average of
prices

44. Inflation Indexes
GDP Deflator
CPI
PPI

45. Quantity Theory of
Money
M = Money Supply
v = velocity
P = Price Level
YR = Real GDP

46. v = velocity
The average number of
times a dollar is used to
purchase final goods and
services within a year

47. Mv = PYR
Assume v andYR are
constant
M = P

48. M = P
Inflation is
everywhere and
always a monetary
phenomenon
- Milton Friedman

50. 1834 to 1933
$1 =1/20 oz of gold
$20 = one oz of gold

51. August 15, 1971
Suspend
temporarily trading
1 oz. of gold for 35
dollars
Richard Nixon
Wage & Price
Controls
New 10%
Tariff

52. $1,320
66x
paper currency has
loss of 98.5% of value

53. Costs of Inflation
uncertainty
illusion
redistribution
tax bracket creep

54. Redistribution
public to government
lenders to borrowers

55. Redistribution
nominal = real + inflation
real can be negative

56. Guessing
Expected Inflation
vs.
Actual Inflation

57. Who wins?
Inflation Winners Losers
Lower than
Expected
Lenders Borrowers
Higher than
Expected
Borrowers Lenders

58. Tax Bracket Creep
10%
20%
Higher tax bracket
Pay more but not earn more

59. Quiz
What is the difference between good
money and bad money?

61. George GilderLife After Google

62. What is Wealth?
Knowledge
What is Growth?
Learning

63. Learning Curve
Double Output
Reduce Costs by
20% to 30%

65. 2008 2018

66. In an information age,
economies can change
as fast as minds can
change

67. 95% of Revenue from
Advertising

68. Selling your time and
attention to advertisers

69. Aggregate Demand
Aggregate Supply
Model
AD-AS Model

74. Supply
No matter the price
you can only produce
so much

75. Supply
a function of all of
your capitals

76. New Capital
Human Beings
Ideas
Human
Physical
Intellectual
Financial
Cultural
Markets
Entrepreneurs
Innovations
Price
Level
Quantity of Output
Long-Run Supply Curve
LRAS2
Y3
LRAS3
Y3
LRAS1
Y1

77. AD
Real GDP Growth Rate
Price
Level
AS
Adam Smith
Classical Model

78. AD
100
Price
Level
AS
Adam Smith
Classical Model
Recession
Unemployment
Real GDP
$6.50
$4.00
50

79. Father of
Macroeconomics
John Maynard Keynes
(1883 - 1946)
The GeneralTheory of
Employment,
Interest and Money
The ideas of economists and
political philosophers are more
powerful than commonly
understood; indeed the world is
ruled by little else.

80. AD
Price
Level
LRAS
Adam Smith
Neo-Classical Model
Real GDP
SRAS
John Keynes