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Unformatted text preview: au/ jmorley/econ402/jobflows.xls Chapter 8  ­ InflaNon •  InflaNon in the Long Run –  The QuanNty Theory of Money –  Real v. Nominal Interest Rates –  Some Unpleasant Monetarist ArithmeNc •  Inflation –  The percentage change in an economy s overall price level •  Hyperinflation –  an episode of extremely high inflation –  Greater than 500 percent per year –  Example: Post World War I Germany 9 8/4/11 •  The inflation rate is computed as the annual percentage change in the price level Australian InflaNon Rate 1960 ­2011 Price level in year t •  The Consumer Price Index (CPI) –  Price index for a bundle of consumer goods U.S. InflaNon Rate 1913 ­2011 8.2 The Quantity Theory of Money •  We often think of money as paper currency. •  Historically –  Money was backed by gold or silver –  The Fable of the Blacksmith 10 8/4/11 Measures of the Money Stock •  Today –  Currency is fiat money. –  Currency is paper that the government simply declares is worth a certain price. –  Money has value because we expect others will value it. –  But it was always thus… •  The monetary base includes currency and accounts, called reserves. –  Private banks hold accounts with the economy s central bank, which pay no interest. –  These banks ensure that they have sufficient cash on hand in case of money withdrawals. The Quantity Equation •  Other measures of money: –  M1 •  The...
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This note was uploaded on 04/13/2012 for the course ECON 2102 taught by Professor ... during the Three '10 term at University of New South Wales.

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