April 3 Notes- 17. - Money supply does not determine inf...

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Money supply does not determine inflation. The growth rate of money supply partially determines inflation. o RGDP also helps determine inflation. Inflation tax: revenue the government earns from creating money. o In the United States, what we do to avoid the incentive for the gvt. To impose n inflation ax on us we try to insulate the Fed from the govt. o Hyperinflation. Some countries get into hyperinflation because of government spending. o Sources of govt. spending: Tax. Bonds. Inflate. Costs of Inflation: o A. A fall in purchasing power. This is an overall fallacy because in the long run, this is not true. What happens is if each and every dollar now buys less than before because of inflation, then yes, prices are rising. But in the long run, wages or income will rise along with it. In the short run, this CAN BE TRUE. o B. Shoe leather costs. The idea here is that resources are wasted from transferring them to and
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April 3 Notes- 17. - Money supply does not determine inf...

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