Principles of Economics- Mankiw (5th) 617

Principles of Economics- Mankiw (5th) 617 - 1922 1921 1925...

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CHAPTER 28 MONEY GROWTH AND INFLATION 637 CASE STUDY MONEY AND PRICES DURING FOUR HYPERINFLATIONS Although earthquakes can wreak havoc on a society, they have the beneficial by-product of providing much useful data for seismologists. These data can shed light on alternative theories and, thereby, help society predict and deal with future threats. Similarly, hyperinflations offer monetary economists a nat- ural experiment they can use to study the effects of money on the economy. Hyperinflations are interesting in part because the changes in the money supply and price level are so large. Indeed, hyperinflation is generally defined (a) Austria (b) Hungary Money supply Price level Index (Jan. 1921 = 100) Index (July 1921 = 100) (c) Germany Price level 1 Index (Jan. 1921 = 100) (d) Poland 100,000,000,000,000 1,000,000 10,000,000,000 1,000,000,000,000 100,000,000 10,000 100 100,000 10,000 1,000 100 1925 1924 1923 1922 1921 Money supply Money supply Price level 100,000 10,000 1,000 100 1925 1924 1923
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Unformatted text preview: 1922 1921 1925 1924 1923 1922 1921 Price level Money supply Index (Jan. 1921 = 100) 100 10,000,000 100,000 1,000,000 10,000 1,000 1925 1924 1923 1922 1921 Figure 28-4 M ONEY AND P RICES DURING F OUR H YPERINFLATIONS . This figure shows the quantity of money and the price level during four hyperinflations. (Note that these variables are graphed on logarithmic scales. This means that equal vertical distances on the graph represent equal percentage changes in the variable.) In each case, the quantity of money and the price level move closely together. The strong association between these two variables is consistent with the quantity theory of money, which states that growth in the money supply is the primary cause of inflation. S OURCE: Adapted from Thomas J. Sargent, “The End of Four Big Inflations,” in Robert Hall, ed., Inflation, Chicago: University of Chicago Press, 1983, pp. 41-93....
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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