Lecture 4

Lecture 4 - Econ 102 Fall 2006 Lecture 4 Money in a...

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1 Econ 102 Fall 2006 Lecture 4 Money in a Classical Model
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2 Questions this lecture will address What is the quantity theory of money and how does it explain prices? How is the Quantity Theory combined with the classical to model to explain employment and prices
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3 Three Classical Monetary Economists David Hume 1711--1776 Alfred Marshall 1842--1924 Irving Fisher 1867--1947
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4 A Modern Monetary Economist Milton Friedman is responsible for reviving classical monetary theory. “Inflation is always and everywhere a monetary phenomenon”
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5 Quantity Theory M kY p = p M Y p M Y = - Demand for money is proportional to GDP k is constant implies Inflation equals money growth minus real growth
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6 Quantity Theory (version 2) Mv pY = 1 k v = v is called the velocity of circulation. It is equal to 1/ k This way of writing the quantity theory of money is due to Irving Fisher
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7 Three High Inflation Countries 0 1000 2000 3000 4000 60 65 70 75 80 85 90 95 00 Money Growth Inflation
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Lecture 4 - Econ 102 Fall 2006 Lecture 4 Money in a...

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