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Macroeconomics
Lecture 14
Inflation and the
Quantity Theory of Money
Chapter 12
Questions?
Inflation
Cause:
Printing money faster than
making goods and services
Effect:
Rising prices
Nominal or Current
vs.
Real or Constant
Quantity Theory of
Money
M = Money Supply
v = velocity
P = Price Level
YR = Real GDP
v = velocity
The average number of
times a dollar is used to
purchase final goods and
services within a year
Mv = PYR
Assume v andYR are
constant
M = P
M = P
Inflation is
everywhere and
always a monetary
phenomenon
- Milton Friedman
1834 to 1933
$1 =1/20 oz of gold
$20 = one oz of gold
$1,320
66x
paper currency has
loss of 98.5% of value
Costs of Inflation
uncertainty
illusion
redistribution
tax bracket creep
Redistribution
public to government
lenders to borrowers
Redistribution
nominal = real +
inflation
real can be negative
Guessing
Expected Inflation
vs.
Actual Inflation
Who wins?
Inflation Winners Losers
Lower than
Expected
Lenders Borrowers
Higher than
Expected
Borrowers Lenders
Tax Bracket Creep
10%
20%
Higher tax bracket
Pay more but not earn more
Exam 2
Review
Chapters 8-12
Growth Models
The Financial System
Stock Market
Unemployment
Inflation
Growth Models
Types
Solow 3 equation
Romer
Solution
Financial System
Income - Consumption
Saving - Borrowing
Supply and Demand
Types of Debt
Types of Firms
Financial Statements
Stock Market
Finance Equation
FutureValue - PresentValue
Indexes
Leverage
Bubbles
Unemployment
Definitions
Two rates
Problems
Types
Insurance
Minimum Wage
Efficiency Wages
Inflation
Prices
Current and Constant
Mv = PYR
M = P
Costs
Exam 2
Thursday and Friday
by 5pm on Friday
Calculator

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Macro 14