Money%20and%20Inflation%20-%20HO

Money%20and%20Inflation%20-%20HO - Quantity Theory of Money...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Quantity Theory of Money M V = P Y Money and Inflation “Inflation is always and everywhere a MONETARY phenomenon.”- Milton Friedman Classical Dichotomy REAL ECONOMY MONETARY ECONOMY Aggregate Output depends upon factors of production and technology. Relative prices (e.g. slices of pizza per glass of beer) are determined by tastes and preferences. Real wages (goods and services paid to workers) depend upon labor productivity. Real interest rates are determined by saving and investment. Money prices are determined by the supply of money…….. Doubling the Money Supply Suppose the U.S. Government were to announce that on January 1st we were changing to a new unit of account: the DOUGHLAR. 1 Dollar = 2 DOUGHLARs Q: What would happen to all money prices on January 1st ? Q: What would happen to relative prices on January 1st ? Price on Dec 31 (Dollars) Price on Jan 1 (DOUGLARS) Glass of Beer 3.00 Slice of Pizza 1.50 Neutrality of Money In the LONG RUN, an X percent increase (decrease) in the money supply will cause an X percent increase (decrease) in money prices....
View Full Document

This note was uploaded on 03/28/2012 for the course ECON 252 taught by Professor Robertholand during the Spring '08 term at Purdue.

Page1 / 17

Money%20and%20Inflation%20-%20HO - Quantity Theory of Money...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online