曼昆宏观经济学第三十章

1、30Money Growth and InflationFigure 2 Two Measures of Inflation1965Percentper Year15CPIGDP deflator10501970197519801985199020001995Copyright2004 South-WesternHyperinflation in Germany between the two world wars After the First World War, Germany experienced a most eye-catching history of hyperinflati

2、on. In the end of the war, the Allies asked the German to pay a large indemnity. Germany eventually adopted to issue of a large number of currency to finance the compensation. From 1922.1 to 1924.12 the German currency and commodity prices are rising at an alarming rate. The price of an newspaper ex

3、periences: 1921.1: 0.3 mark 1922.5: 1 mark 1922.10: 8mark 1923.2: 100mark 1923.9: 1000mark10.1: 2000 mark 10.15: 120000 mark10.29: 1million mark 11.9 : 5million mark 11.27: 70million mark Questions What determines whether an economy experiences inflation, if so, how much? In the long run, whats the

4、results of inflation? What are the costs that inflation imposes on a society exactly?Contents The classical theory of inflation -the level of prices and the value of money -monetary equilibrium -the classical dichotomy and monetary neutrality -quantity equation and Fisher effect The costs of inflati

5、onThe Meaning of Money Money is the set of assets in an economy that people regularly use to buy goods and services from other people.The level of prices and the value of money Inflation is an increase in the overall level of prices. Inflation is more about the value of money than the value of goods

6、. Inflation is an economy-wide phenomenon that concerns the value of the economys medium of exchange.The level of prices and the value of money The economys overall price level can be viewed in two ways. the price level is the price of a basket of goods and services. the price level is a measure of

7、the value of money. Suppose P is the price level as measured, for instance, by CPI or GDP deflator. P measures the number of dollars needed to buy a basket of goods and services . So the quantity of goods and services that can be bought with &1 equals 1/P. If P is the price of goods and services

8、 measured in terms of money, 1/P is value of money measured in terms of goods and services. When the overall price level rises, the value of money falls.Money Supply, Money Demand, and Monetary Equilibrium What determines the value of money? Money supply In this chapter, we ignore the complications

9、introduced by the banking system. Simply the money supply is a policy variable that is controlled by the Fed. Money demand The demand for money reflects how much wealth people want to hold in liquid form. Money demand has several determinants, including interest rates and the average level of prices

10、 in the economy. People hold money because it is the medium of exchange. In the long run, the overall level of prices adjusts to the level at which the demand for money equals the supply.THE CLASSICAL THEORY OF INFLATION The Quantity Theory of Money How the price level is determined and why it might

11、 change over time is called the quantity theory of money. The quantity of money available in the economy determines the value of money. The primary cause of inflation is the growth in the quantity of money.Figure 1 Money Supply, Money Demand, and the Equilibrium Price LevelCopyright 2004 South-Weste

12、rnQuantity ofMoneyValue ofMoney, 1/PPrice Level, PQuantity fixedby the FedMoney supply01(Low)(High)(High)(Low)1/21/43/411.3324Equilibriumvalue ofmoneyEquilibriumprice levelMoneydemandAFigure 2 The Effects of Monetary InjectionCopyright 2004 South-WesternQuantity ofMoneyValue ofMoney, 1/PPrice Level,

13、 PMoneydemand01(Low)(High)(High)(Low)1/21/43/411.3324M1MS1M2MS22. . . . decreasesthe value ofmoney . . .3. . . . andincreasesthe pricelevel.1. An increasein the moneysupply . . .ABDiscussion Suppose that changes in bank regulations expand the availability of credit cards so that people need to hold

14、less cash. How does this event affect the demand for money? If the Fed does not respond to this event, what will happen to the price level? If the Fed wants to keep the price level stable, what should it do?The Classical Dichotomy and Monetary Neutrality We have seen how changes in the monetary supp

15、ly lead to changes in the average level of prices of goods and services. How do monetary supply changes affect other economic variables? Nominal variables are variables measured in monetary units. Real variables are variables measured in physical units. Dollar prices are nominal variables, relative

16、prices are real variables. According to Hume and others, real economic variables do not change with changes in the money supply. Changes in the money supply affect nominal variables but not real variables. The irrelevance of monetary changes for real variables is called monetary neutrality.Velocity

17、and the Quantity Equation The velocity of money refers to the speed at which the typical dollar bill travels around the economy from wallet to wallet.Velocity and the Quantity EquationV = (P Y)/M Where: V = velocityP = the price levelY = the quantity of outputM = the quantity of moneyVelocity and th

18、e Quantity Equation Rewriting the equation gives the quantity equation:MV = P Y The quantity equation relates the quantity of money (M) to the nominal value of output (P Y).Velocity and the Quantity Equation The quantity equation shows that an increase in the quantity of money in an economy must be

19、reflected in one of three other variables: the price level must rise, the quantity of output must rise, or the velocity of money must fall.Figure 3 Nominal GDP, the Quantity of Money, and the Velocity of MoneyCopyright 2004 South-WesternIndexes(1960 = 100)2,0001,00050001,5001960196519701975198019851

20、99019952000Nominal GDPVelocityM2Velocity and the Quantity Equation The Equilibrium Price Level, Inflation Rate, and the Quantity Theory of Money The velocity of money is relatively stable over time. When the Fed changes the quantity of money, it causes proportionate changes in the nominal value of o

21、utput (P Y). Because money is neutral, money does not affect output.Discussion It is often suggested that the Federal Reserve try to achieve to zero inflation. If we assume that velocity is constant, does this zero-inflation goal require that the rate of money growth equal zero? If yes, explain why.

22、 If no, explain what the rate of money growth should equal. CASE STUDY: Money and Prices during Four Hyperinflations Hyperinflation is inflation that exceeds 50 percent per month. Hyperinflation occurs in some countries because the government prints too much money to pay for its spending.Figure 4 Mo

23、ney and Prices During Four HyperinflationsCopyright 2004 South-Western(a) Austria(b) HungaryMoney supplyPrice levelIndex(Jan. 1921 = 100)Index(July 1921 = 100)Price level100,00010,0001,00010019251924192319221921Money supply100,00010,0001,00010019251924192319221921Figure 4 Money and Prices During Fou

24、r HyperinflationsCopyright 2004 South-Western(c) Germany1Index(Jan. 1921 = 100)(d) Poland100,000,000,000,0001,000,00010,000,000,0001,000,000,000,000100,000,00010,000100MoneysupplyPrice level19251924192319221921Price levelMoneysupplyIndex(Jan. 1921 = 100)10010,000,000100,0001,000,00010,0001,000192519

25、24192319221921The Inflation Tax When the government raises revenue by printing money, it is said to levy an inflation tax. An inflation tax is like a tax on everyone who holds money. The inflation ends when the government institutes fiscal reforms such as cuts in government spending.The Fisher Effec

26、t The Fisher effect refers to a one-to-one adjustment of the nominal interest rate to the inflation rate. According to the Fisher effect, when the rate of inflation rises, the nominal interest rate rises by the same amount. The real interest rate stays the same.Figure 5 The Nominal Interest Rate and

27、 the Inflation RateCopyright 2004 South-WesternPercent(per year)19601965197019751980198519901995200003691215InflationNominal interest rateDiscussion Suppose that a countrys inflation rate increases sharply. What happens to the inflation tax on the holders of money? Why is wealth that is held in savi

28、ng accounts not subject to a change in the inflation tax? Can you think of any way holders of savings accounts are hurt by the increase in the inflation rate?THE COSTS OF INFLATION A Fall in Purchasing Power? Inflation does not in itself reduce peoples real purchasing power.THE COSTS OF INFLATION Sh

29、oeleather costs Menu costs Relative price variability Tax distortions Confusion and inconvenience Arbitrary redistribution of wealthShoeleather Costs Shoeleather costs are the resources wasted when inflation encourages people to reduce their money holdings. Inflation reduces the real value of money,

30、 so people have an incentive to minimize their cash holdings. Shoeleather Costs Less cash requires more frequent trips to the bank to withdraw money from interest-bearing accounts. The actual cost of reducing your money holdings is the time and convenience you must sacrifice to keep less money on ha

31、nd. Also, extra trips to the bank take time away from productive activities.Menu Costs Menu costs are the costs of adjusting prices. During inflationary times, it is necessary to update price lists and other posted prices. This is a resource-consuming process that takes away from other productive ac

32、tivities.Relative-Price Variability and the Misallocation of Resources Inflation distorts relative prices. Consumer decisions are distorted, and markets are less able to allocate resources to their best use.Inflation-Induced Tax Distortion Inflation exaggerates the size of capital gains and increase

33、s the tax burden on this type of income. With progressive taxation, capital gains are taxed more heavily.Inflation-Induced Tax Distortion The income tax treats the nominal interest earned on savings as income, even though part of the nominal interest rate merely compensates for inflation. The after-

34、tax real interest rate falls, making saving less attractive.Table 1 How Inflation Raises the Tax Burden on SavingCopyright2004 South-WesternConfusion and Inconvenience When the Fed increases the money supply and creates inflation, it erodes the real value of the unit of account. Inflation causes dol

35、lars at different times to have different real values. Therefore, with rising prices, it is more difficult to compare real revenues, costs, and profits over time.A Special Cost of Unexpected Inflation: Arbitrary Redistribution of Wealth Unexpected inflation redistributes wealth among the population

36、in a way that has nothing to do with either merit or need. These redistributions occur because many loans in the economy are specified in terms of the unit of accountmoney.Discussion Suppose that people expect inflation to equal 3 percent, but in fact, prices rise by 5 percent. Describe how this une

37、xpectedly high inflation rate would help or hurt the following: The government A homeowner with a fixed-rate mortgage A union worker in the second year of a labor contract A college that has invested some of its endowment in government bonds. a.Unexpectedly high inflation helps the government by pro

38、viding higher inflation tax revenue and reducing the real value of outstanding government debt. b.Unexpectedly high inflation helps a homeowner with a fixed-rate mortgage because he pays a fixed nominal interest rate that was based on expected inflation, and thus pays a lower real interest rate than

39、 was expected. c.Unexpectedly high inflation hurts a union worker in the second year of a labor contract because the contract probably based the workers nominal wage on the expected inflation rate. As a result, the worker receives a lower-than-expected real wage. d.Unexpectedly high inflation hurts a college that has invested some of its endowment in government bonds because the higher inflation rate means the college is receiving a lower real interest rate than it had planned.Summary The overall level of prices in an e