Principles of Economics- Mankiw (5th) 631

Principles of Economics- Mankiw (5th) 631 - CHAPTER 28 M O...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
CHAPTER 28 MONEY GROWTH AND INFLATION 651 regardless of inflation. If there is no in- flation, in 20 years the pension will have the same purchasing power that it does today. But if there is an inflation rate of only 3 percent per year, in 20 years your pension will be worth only $5,540 in today’s dollars. Five percent inflation over 20 years will cut your purchasing power to $3,770, and 10 percent will reduce it to a pitiful $1,390. Which of these scenarios is likely? No one knows. Inflation ultimately depends on the people who are elected and ap- pointed as guardians of our money supply. At a time when Americans are liv- ing longer and planning for several decades of retirement, the insidious ef- fects of inflation should be of serious concern. For this reason alone, the cre- ation of inflation-indexed bonds, with their guarantee of a safe return over long periods of time, is a welcome de- velopment. No other investment offers this
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.
Ask a homework question - tutors are online