Macroeconomic Policy Exercise set 9 1. Assume the classical
... dollars. Since only the US Federal Reserve can print US dollars, dollarization can be seen as a commitment to reduce the rate of nominal money growth in the dollarized economy to zero (or so to speak). Suppose that at time t a country whose money supply has grown at a constant 10% rate for a long ti ...
... dollars. Since only the US Federal Reserve can print US dollars, dollarization can be seen as a commitment to reduce the rate of nominal money growth in the dollarized economy to zero (or so to speak). Suppose that at time t a country whose money supply has grown at a constant 10% rate for a long ti ...
Module Inflation: An Overview
... Module 14 Inflation: An Overview KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson ...
... Module 14 Inflation: An Overview KRUGMAN'S MACROECONOMICS for AP* Margaret Ray and David Anderson ...
Beginning Activity
... • Creeping inflation – 1 to 3% per year • Galloping inflation – 100 to 300% per year • Hyperinflation – 500% and up – Ex. Hungary’s currency inflation went up to 828 octillion to 1 because it printed money to pay its bills. – What currency rule does that violate? ...
... • Creeping inflation – 1 to 3% per year • Galloping inflation – 100 to 300% per year • Hyperinflation – 500% and up – Ex. Hungary’s currency inflation went up to 828 octillion to 1 because it printed money to pay its bills. – What currency rule does that violate? ...
I) Inflation
... the general level of prices. The value of currency is constantly decreasing. Conversely, prices of all consumer goods are constantly increasing. ...
... the general level of prices. The value of currency is constantly decreasing. Conversely, prices of all consumer goods are constantly increasing. ...
BUSINESS CYCLE, FEDERAL RESERVE, TAXATION
... rising. Inflation is a natural occurrence, but high rates of inflation can cause a decline in business activity. • Inflation is caused by an increase in the money supply. Money in circulation, or being spent. RECESSION • During a period of recession, consumers are not spending money, thus business p ...
... rising. Inflation is a natural occurrence, but high rates of inflation can cause a decline in business activity. • Inflation is caused by an increase in the money supply. Money in circulation, or being spent. RECESSION • During a period of recession, consumers are not spending money, thus business p ...
Inflation - Herricks
... Effects of Inflation o Erosion of purchasing power o Erosion of income especially if on Fixed income ...
... Effects of Inflation o Erosion of purchasing power o Erosion of income especially if on Fixed income ...
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the consumer price index) over time. The opposite of inflation is deflation.Inflation affects an economy in various ways, both positive and negative. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future.Inflation also has positive effects: Fundamentally, inflation gives everyone an incentive to spend and invest, because if they don't, their money will be worth less in the future. This increase in spending and investment can benefit the economy. However it may also lead to sub-optimal use of resources. Inflation reduces the real burden of debt, both public and private. If you have a fixed-rate mortgage on your house, your salary is likely to increase over time due to wage inflation, but your mortgage payment will stay the same. Over time, your mortgage payment will become a smaller percentage of your earnings, which means that you will have more money to spend. Inflation keeps nominal interest rates above zero, so that central banks can reduce interest rates, when necessary, to stimulate the economy. Inflation reduces unemployment to the extent that unemployment is caused by nominal wage rigidity. When demand for labor falls but nominal wages do not, as typically occurs during a recession, the supply and demand for labor cannot reach equilibrium, and unemployment results. By reducing the real value of a given nominal wage, inflation increases the demand for labor, and therefore reduces unemployment.Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply. However, money supply growth does not necessarily cause inflation. Some economists maintain that under the conditions of a liquidity trap, large monetary injections are like ""pushing on a string"". Views on which factors determine low to moderate rates of inflation are more varied. Low or moderate inflation may be attributed to fluctuations in real demand for goods and services, or changes in available supplies such as during scarcities. However, the consensus view is that a long sustained period of inflation is caused by money supply growing faster than the rate of economic growth.Today, most economists favor a low and steady rate of inflation. Low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control monetary policy through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.