Unformatted text preview: 12:30 class:
Final exam is in this room.
in Chapters 14 – Modern
Chapters
Macroeconomics and Monetary
Policy Thurs., Dec. 9, 3  5 p.m.
Same format
Bring 2 PENCILS and FSU ID and in
ch. 15…only pp. 332 – end
ch. 15…
(The Phillips Curve) Your final will cover chapters 13, 717
NO OFFICE HOURS FINALS WEEK: How to figure your average: PMA: What causes inflation? 12:30 class:
Grade on one Midterm
Grade on other Midterm
Average on Bb Quizzes*
Grade on Final Exam Grade
Percentage Weight
____________
X .2 =
____________
X .2 =
____________
X .2 =
____________
X .4 = Total those up for your final average
If you missed any midterm, take that line out of the above and
increase your final exam percentage by the weight of the missed
exam. For example, if you only took one midterm, delete one of
those lines and add 20% to your final exam weight. So now your
final exam would count as 60% instead of 40%. If you didn’t take
ANY midterms, your final counts 80% and Bb quizzes count 20%. 1. Labor unions
2. A decrease in unemployment
3. An increase in the growth rate of the money supply
4.
5.
6.
7. over and above any increase in real output.
OPEC
A decrease in taxes
An increase in Government spending
An increase in government borrowing financed by
selling bonds to the general public. BRING PRINTOUT OF YOUR GRADES IF YOU COME TO MY OFFICE
TO ASK ABOUT GRADES…
*Drop 4 of your Bb quizzes. Monetarist’s Theory of
Monetarist’
Inflation
• Equation of Exchange MV = PQ
M = nominal money supply (the NUMBER of dollars in circulation)
V = velocity (the average no. of times each dollar is spent)
P = The average price level (measured by CPI)
Q = real output (the NUMBER of things produced.) Tautology (true by definition)
Tautology
TS = TR Thus: MV = PQ But TS is just MV
And TR is just PQ Quantity theory of money:
• Equation of Exchange + 2
assumptions: – Velocity is relatively constant
• Based on monthly payments
• Is relatively stable
– Q (Real GDP) is relatively stable
• 3% per year is the LR growth rate of Q Quantity theory of money:
Quantity To repeat:
Thus, if V & Q are not changing, any
increase in M leads to a DIRECT and
PROPORTIONAL increase in P.
P. • Equation of Exchange + 2
assumptions: – Velocity is relatively constant
• Based on monthly payments
• Is relatively stable
– Q (Real GDP) is relatively stable
• 3% per year is the LR growth rate of Q
Thus, if V & Q are not changing, any increase in M leads
to a DIRECT and PROPORTIONAL increase in P.
Sustained increases in the money supply lead to
sustained increases in the APL which IS inflation! To repeat: Sustained increases in the money supply
Sustained increases
lead to sustained increases in the APL
sustained
which IS inflation!
IS
And THAT is the monetarist’s theory of
monetarist’
inflation! However, suppose Q is NOT constant: MxV=PxQ MxV=PxQ But if you look at the percentage CHANGE
…
____ Then any change in M could be impacted
by a change in P or a change in Q…
Q…
____ ____ ∆M+∆V=∆P+∆Q %∆ M + % ∆ V = % ∆ P + %∆ Q
And THAT is the monetarist’s theory of
monetarist’
inflation! Changes in M lead directly and
proportionally to changes in P. Rules Monetary Policy
• Gold Standard
• Matching increases in M to increases Thus, what causes inflation? Any increase
in M OVER AND ABOVE any increase in Q
(real output or real GDP) (PMA) What causes inflation?
(PMA)
1.
2.
3. in Q (real output, real GDP) Deflation: do we want it? 4.
5.
6.
7. Labor unions
A decrease in unemployment
An increase in the growth rate of the
money supply over and above any
increase in real output.
A decrease in taxes.
OPEC
An increase in government spending.
Greedy businesses (PMA) What is the miracle of
(PMA)
compound interest? 1. That saving EARLY is one of the most important keys to becoming
financially wealthy.
2. That investing in a safe, low yield
investment, like a savings account,
is the key to becoming financially
wealthy. End Chapter 14 ...
View
Full Document
 Fall '10
 SLATE
 Inflation, Phillips Curve, real output, PMA

Click to edit the document details