文档介绍：Money Growth and Inflation
Chapter 28
Inflation
Inflation is an increase in the overall level of prices.
Inflation: Historical Aspects
Over the past sixty years, prices have risen on average about 5 percent per year.
Deflation, meaning decreasing average prices, occurred in the . in the eenth century.
Hyperinflation refers to high rates of inflation such as Germany experienced in the 1920s.
Inflation: Historical Aspects
In the 1970s prices rose by 7 percent per year.
During the 1990s, prices rose at an average rate of 2 percent per year.
The Classical Theory of Inflation
The quantity theory of money is used to explain the long-run determinants of the price level and the inflation rate.
Inflation is an economy-wide phenomenon that concerns the value of the economy’s medium of exchange.
When the overall price level rises, the value of money falls.
Money Supply, Money Demand, and ary Equilibrium
The money supply is a policy variable that is controlled by the Fed.
Through instruments such as open-market operations, the Fed directly controls the quantity of money supplied.
Money Supply, Money Demand, and ary Equilibrium
Money demand has several determinants, including interest rates and the average level of prices in the economy.
People hold money because it is the medium of exchange.
The amount of money people choose to hold depends on the prices of goods and services.
Money Supply, Money Demand, and ary Equilibrium
Money Supply, Money Demand, and ary Equilibrium
In the long run, the overall level of prices adjusts to the level at which the demand for money equals the supply.
Quantity fixed
by the Fed
Quantity of
Money
Value of
Money (1/P)
Price
Level (P)
A
Money supply
0
1
(Low)
(High)
(High)
(Low)
1/2
1/4
3/4
1
2
4
Money
demand
Money Supply, Money Demand, and the Equilibrium Price Level
Equilibrium value of money
Equilibrium price level