Chapter 24 outline

Chapter 24 outline - Chapter24:MoneyandInflation I. II....

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Chapter 24: Money and Inflation I. Inflation : the condition of a continually and rapidly rising price level a. “Inflation is always and everywhere a monetary phenomenon.” b. The source of all inflation episodes is a high growth rate of money supply. c. By reducing the growth rate of the money supply to low levels, inflation  can be prevented. d. Inflationary monetary policy is an offshoot of other government policies: d.i. Attempt to hit high employment targets d.ii. Running of large budget deficits II. a. Countries with the highest inflation rates also have the highest rates of  money growth. b. German Hyperinflation b.i. Reconstruct economy after WWI b.ii. Taxes- unpopular, too long to implement b.iii. Borrow money from public- not enough b.iv. Solution: print more money. b.v. EXOGENEOUS EVENT b.vi. Similar cases for Brazil, Argentina, and Peru III. Meaning of Inflation a. Only if the inflation rate remains high for a substantial period of time  (greater than1% per month for several years) will economists say that  inflation has been high. b. Upward movements of price level are a monetary phenomenon ONLY if  sustained IV. Views of Inflation a. Fiscal policy by itself cannot produce inflation a.i. A one-shot increase in government expenditure leads only to a  temporary  increase in the inflation rate, not to an inflation in which  the price level is continually rising. a.ii. Continually increasing level of government expenditure is not a  feasible policy (cannot spend more than 100% GDP) a.iii. Same with taxes – reduce taxes and increase inflation one time, but  cannot continue forever – taxes cannot be lower than zero
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This note was uploaded on 03/30/2012 for the course ECON 2035 taught by Professor Stahl during the Spring '08 term at LSU.

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Chapter 24 outline - Chapter24:MoneyandInflation I. II....

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