D._Money_and_Inflation_011711-1

D._Money_and_Inflation_011711-1 - Money and Inflation UCLA...

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Money and Inflation UCLA Winter 2011 Professor Mark Wright
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1 Introduction In 1913, the value of all the money circulating in Germany was 6 billion marks In October 1923, 6 billion marks was barely enough to buy a loaf of bread By November 1923, a loaf of bread would cost 428 billion The German hyperinflation of the early 1920’s is the most famous, but far from the only or even the worst, hyperinflation of the 20 th C It had tragic world consequences: November 8th, 1923, Hitler and 2000 Nazis marched through the streets of Munich to take over a political meeting at the Munich Beer Hall. On the 9th November, 13 Nazis were shot by police in a street protest Hitler was arrested for treason and put on trial. This trial made Hitler and the Nazi’s famous In May 1924, 32 Nazi’s were elected to the Reichstag
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2 Introduction … ctd In January 2009 in Zimbabwe, inflation was 6.5 quindecillion novemdecillion % That's 65 followed by 107 zeroes And the rate is doubling almost every day
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3 In this section, you will learn… The classical theory of inflation causes effects social costs “Classical” – assumes prices are flexible & markets clear Applies to the long run Application to hyper -inflation in Germany
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4 Reading Abel, Bernanke and Croushore: Chapter 7 (especially 7.5) Chapter 12.3 Chapter 15.4 These slides (I got a little over-excited in making slides) Some optional readings on website
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5 U.S. Inflation and the nominal interest rate, 1960–2009
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6 The connection between money and prices Inflation rate = the percentage increase in the average level of prices. Price = amount of money required to buy a good. Because prices are defined in terms of money, we need to consider the nature of money, the supply of money, and how it is controlled.
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7 Money: Definition Money is the stock of assets that can be readily used to make transactions.
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8 Money: Functions medium of exchange we use it to buy stuff store of value transfers purchasing power from the present to the future unit of account the common unit by which everyone measures prices and values
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9 Money: Types 1. fiat money has no intrinsic value example: the paper currency we use 2. commodity money has intrinsic value examples: gold coins, cigarettes in P.O.W. camps
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10 Discussion Question Which of these are money? a. Currency b. Checks c. Deposits in checking accounts (“demand deposits”) d. Credit cards e. Certificates of deposit (“time deposits”)
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11 The money supply and monetary policy definitions The money supply is the quantity of money available in the economy. Monetary policy is the control over the money supply.
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12 The central bank Monetary policy is conducted by a country’s central bank .
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This note was uploaded on 03/30/2011 for the course ECON 102 taught by Professor Serra during the Winter '08 term at UCLA.

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D._Money_and_Inflation_011711-1 - Money and Inflation UCLA...

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