Macro 14

2. Macroeconomics
Lecture 14
Inflation and the
Quantity Theory of Money
Chapter 12

3. Questions?

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

5. Nominal or Current
vs.
Real or Constant

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

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

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

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

11. 1834 to 1933
$1 =1/20 oz of gold
$20 = one oz of gold

12. $1,320
66x
paper currency has
loss of 98.5% of value

13. Costs of Inflation
uncertainty
illusion
redistribution
tax bracket creep

14. Redistribution
public to government
lenders to borrowers

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

16. Guessing
Expected Inflation
vs.
Actual Inflation

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

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

19. Exam 2
Review
Chapters 8-12

20. Growth Models
The Financial System
Stock Market
Unemployment
Inflation

21. Growth Models
Types
Solow 3 equation
Romer
Solution

22. Financial System
Income - Consumption
Saving - Borrowing
Supply and Demand
Types of Debt
Types of Firms
Financial Statements

23. Stock Market
Finance Equation
FutureValue - PresentValue
Indexes
Leverage
Bubbles

24. Unemployment
Definitions
Two rates
Problems
Types
Insurance
Minimum Wage
Efficiency Wages

25. Inflation
Prices
Current and Constant
Mv = PYR
M = P
Costs

26. Exam 2
Thursday and Friday
by 5pm on Friday
Calculator