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Principles of Economics- Mankiw (5th) 627

Principles of Economics- Mankiw (5th) 627 - CHAPTER 28 M O...

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CHAPTER 28 MONEY GROWTH AND INFLATION 647 CASE STUDY THE WIZARD OF OZ AND THE FREE-SILVER DEBATE As a child, you probably saw the movie The Wizard of Oz, based on a children’s book written in 1900. The movie and book tell the story of a young girl, Dorothy, who finds herself lost in a strange land far from home. You probably did not know, however, that the story is actually an allegory about U.S. mone- tary policy in the late nineteenth century. From 1880 to 1896, the price level in the U.S. economy fell by 23 percent. Because this event was unanticipated, it led to a major redistribution of A SPECIAL COST OF UNEXPECTED INFLATION: ARBITRARY REDISTRIBUTIONS OF WEALTH So far, the costs of inflation we have discussed occur even if inflation is steady and predictable. Inflation has an additional cost, however, when it comes as a surprise. Unexpected inflation redistributes wealth among the population 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 account—money.
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