UGBA M3L8 - UGBA M3L8 The Great Inflation Price of a Value...

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UGBA M3L8 The Great Inflation Price of a “Value Meal” Current Price is $3.49 You will retire 40 years from now If Inflation is 2 percent your Mc Donald’s meal will cost $7.71 High Inflation Causes Social Problems When inflation is very high, it is almost impossible to save for the future: retirement children’s college education High inflation severely impacts people on fixed incomes and leads to social unrest Want 16% pay raise. What made the inflation “hump”? 1. Baby boomers’ boom—they all wanted houses and had higher earning power 2. Oil shocks 3. Central bankers mis-managed the money supply How inflation affects interest rates VN Savings accounts offer 17.8 percent interest—should you invest? Converted money to dong then change back to dollars then you would not get as much back *Is current U.S. inflation actually low? In general, long-run US rate, about 2 percent (look at this slide) (Interim) Conclusion about inflation “Price Stability” (low inflation) one of the functions of the Federal Reserve (the other is to promote economic growth) Keeping inflation low is essential for savers (e.g. retirees) The recession has lowered inflation There are risks, due to the sheer size of the bailout + stimulus
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This note was uploaded on 10/03/2011 for the course UGBA 10 taught by Professor Xuanmingsu during the Fall '08 term at University of California, Berkeley.

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UGBA M3L8 - UGBA M3L8 The Great Inflation Price of a Value...

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