SQ4Money Supply Growth and Inflation

SQ4Money Supply Growth and Inflation - Inflation...

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Unformatted text preview: Inflation rate (percent, 100 '— Iogarithmic scale} Money Growth and Inflation: A High, Positive Correlation Average Annual Rates of Growth in M2 and in Consumer Prices Dur'ng 1960—90 in 110 Countries ! ‘inD—Li 0 Inflation % 100 80* 60— 40- l L I I 80 100% Money Growth Source International Monetary Fund Money and Real Output Growth: No Correlation in the Full Sample . . . Average Annual Rates of Growth in M2 and in Nominal Gross Domestic Product, Deflated by Consumer Prices During 1960—90 in 110 Countries Rea Output Growth . % :13 Ti 40 fi_— 7 20 ~ _ _ I? 5:... . - . _ 0 7 3, 4-. 7*. - _20 , i i , | i 0 20 40 60 80 100% Money Growth Source: International Monetary Fund i L *4 Iv? (7' C r ,t. n C l 7 lé Z Li? I Belai'us Ecuador 1 1 Indonesia ' I Turkey Haiti / It!“ s a" l 1 10- if" 1 a , a i“ e I 5 1*. ' 'fi Argentina 17 f E f: I U ted ' I 4 ' I m States I I Euro Area Sinaa rle ‘ ° [:0 Switzerland 0.1 10 100 Money supply growth (percent, logarithmic scale) lntemational Data on Inflation and Money Growth In. this scatterplot, each point represents a country. The horizon- tal axrs showsthe average growth in the money supply (as measured by currency plus demand deposits) during the period. 1996. to 2004, and the vertical axis shows the aver— age rate of'inflation (as measured by the CPI). Once again, the positive correlation is evidence For the quantity theorv’s prediction that high money growth leads to high inflation. Source: International Financial Statistics. Inflation and Real Output Growth: No Correlation Average Annual Rates of Growth in Consumer Prices and in Nominal Gross Domestic Product, Deflated by Consumer Prices During 1960—90 in 110 Countrles AY Real Output .._... Growth % Y 20 . ' ’ ' 100% Inflation Ar ‘— _P Source: International Monetary Fund ...
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