宏觀經(jīng)濟(jì)學(xué)原理 (八)

MONEYGROWTHAND

30INFLATION

WHAT$NEWINTHESIXTHEDITION:

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Anewsectionon''InflationisBadzbutDeflationMaybeWorsehasbeenadded.ThereisanewFYIbox

on''HyperinflationinZimbabwe"andanewInthefeatureon''InflationTargets//

LEARNINGOBJECTIVES:

Bytheendofthischapter,studentsshouldunderstand:

>whyinflationresultsfromrepidgrowthinthemoneysupply.

>themeaningoftheclassicaldichotomyandmonetaryneutrality.

>whysomecountriesprintsomuchmoneythattheyexperiencehyperinflation.

>howthenominalinterestraterespondstotheinflationrate.

>thevariouscoststhatinflationimposesonsociety.

CONTEXTANDPURPOSE:

Chapter17isthesecondchapterinatwo-chaptersequencedealingwithmoneyandpricesinthelong

run.Chapter16explainedwhatmoneyisandhowtheFederalReservecontrolsthequantityofmoney.

Chapter17establishestherelationshipbetweentherateofgrowthofmoneyandtheinflationrate.

Thepurposeofthischapteristoacquaintstudentswiththecausesandcostsofinflation.Studentswill

findthat,inthelongrun,thereisastrongrelationshipbetweenthegrowthrateofmoneyandinflation.

Studentswillalsofindthattherearenumerouscoststotheeconomyfromhighinflation,butthatthereis

notaconsensusontheimportanceofthesecostswheninflationismoderate.

KEYPOINTS:

?Theoveralllevelofpricesinaneconomyadjuststobringmoneysupplyandmoneydemandinto

balance.Whenthecentralbankincreasesthesupplyofmoney,itcausesthepriceleveltorise.

Persistentgrowthinthequantityofmoneysuppliedleadstocontinuinginflation.

504

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?Theprincipleofmonetaryneutralityassertsthatchangesinthequantityofmoneyinfluencenominal

variablesbutnotrealvariables.Mosteconomistsbelievethatmonetaryneutralityapproximately

describesthebehavioroftheeconomyinthelongrun.

?Agovernmentcanpayforsomeofitsspendingsimplybyprintingmoney.Whencountriesrely

heavilyonthis''inflationtax,“theresultishyperinflation.

?OneapplicationoftheprincipleofmonetaryneutralityistheFishereffect.AccordingtotheFisher

effect,whentheinflationraterises,thenominalinterestratsrisesbythesameamount,sothatthe

realinterestrateremainsthesame.

?Manypeoplethinkthatinflationmakesthempoorerbecauseitraisesthecostofwhattheybuy.This

viewisafallacy,however,becauseinflationalsoraisesnominalincomes.

?Economistshaveidentifiedsixcostsofinflation:shoeleathercostsassociatedwithreducedmoney

holdings,menucostsassociatedwithmorefrequentadjustmentofprices,increasedvariabilityof

relativeprices,unintendedchangesintaxliabilitiesduetononindexationofthetaxcode,confusion

andinconvenienceresultingfromachangingunitofaccount,andarbitraryredistributionsofwealth

betweendebtorsandcreditors.Manyofthesecostsarelargeduringhyperinflation,butthesizeof

thesecostsformoderateinflationislessclear.

CHAPTEROUTLINE:

I.TheinflationrateismeasuredasthepercentagechangeintheConsumerPriceIndex,theGDP

deflator,orsomeotherindexoftheoverallpricelevel.

A.Overthepast70years,priceshaverisenanaverageofabout4%peryearintheUnitedStates.

1.Therehasbeensubstantialvariationintherateofpricechangesovertime.

2.Duringthe1990s,pricesroseatanaveragerateof2%peryear,whilepricesroseby7%per

yearduringthe1970s.

B.Internationaldatashowsanevenbroaderrangeofinflationexperiences.In2009,inflationwas

9%inRussiaand25%inVenezuela.

ILTheClassicalTheoryofInflation

Startoffthechapterbydifferentiatingbetweena''once-and-for-all,zincreaseinthe

averagelevelofpricesandacontinuousincreaseinthepricelevel.Alsomakesure

thatstudentsrealizethatinflationmeansthattheaveragelevelofpricesinthe

economyisrisingratherthanthepricesofallgoods.

ItisinstructivetoreviewtheinflationhistoryoftheUnitedStates.Whileyour

studentsarelikelyfullyawareofinflation,theymaynotrealizethat,priortoWorld

WarII,theUnitedStatesexperiencedseveralperiodsofdeflation.Alsopointoutto

thestudentsthattherateofinflationhasvariedsignificantlysinceWorldWarII.

506?Chapter30/MoneyGrowthandInflation

A.TheLevelofPricesandtheValueofMoney

1.Whenthepricelevelrises,peoplehavetopaymoreforthegoodsandservicesthatthey

purchase.

2.Ariseinthepricelevelalsomeansthatthevalueofmoneyisnowlowerbecauseeachdollar

nowbuysasmallerquantityofgoodsandservices.

3.IfPisthepricelevel,thenthequantityofgoodsandservicesthatcanbepurchasedwith$1

isequalto1/P.

4.Supposeyouliveinacountrywithonegood(icecreamcones).

a.Whenthepriceofanicecreamconeis$2,thevalueofadollaris1/2cone.

b.Whenthepriceofanicecreamconerisesto$3,thevalueofadollaris1/3cone.

B.MoneySupply,MoneyDemand,andMonetaryEquilibrium

1.Thevalueofmoneyisdeterminedbythesupplyanddemandformoney.

2.Forthemostpart,thesupplyofmoneyisdeterminedbytheFed.

a.Thisimpliesthatthequantityofmoneysuppliedisfixed(untiltheFeddecidestochange

it).

b.Thus,thesuppl/ofmoneywillbevertical(perfectlyinelastic).

3.Thedemandformcneyreflectshowmuchwealthpeoplewanttoholdinliquidform.

a.Onevariablethatisveryimportantindeterminingthedemandformoneyistheprice

level.

b.Thehigherpricesare,themoremoneythatisreededtoperformtransactions.

|Figure11

c.Thus,ahigherpricelevel(andalowervalueofmoney)leadstoahigherquantityof

moneydemanded.

4.Inthelongrun,theoverallpriceleveladjuststothelevelatwhichthedemandformoney

equalsthesupplyo￡money.

a.Ifthepricelevelisabovetheequilibriumlevel,oeoplewillwanttoholdmoremoney

thanisavailableandpriceswillhavetodecline.

b.Ifthepricelevelisbelowequilibrium,peoplewillwanttoholdlessmoneythanthat

availableandthepricelevelwillrise.

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MS]MS2

5.Wecanshowthesupplyanddemandformoneyusingagraph.

a.Theleft-handverticalaxisisthevalueofmoney,measuredby1/P.

b.Theright-handverticalaxisisthepricelevel(P).Notethatitisinverted—ahighvalueof

moneymeansalowpricelevelandviceversa.

c.Attheequilibriim,thequantityofmoneydemandedisequaltothequantityofTioney

supplied.

C.TheEffectsofaMonetaryInjection

1.AssumethattheeconomyiscurrentlyinequilibriumandtheFedsuddenlyincreasesthe

supplyofmoney.

2.Thesupplyofmoneyshiftstotheright.

IFigure2I

3.Theequilibriumvalueofmoneyfallsandthepricelevelrises.

4.Whenanincreaseinthemoneysupplymakesdollarsmoreplentiful,theresultisanincrease

inthepricelevelthatmakeseachdollarlessvaluable.

5.Definitionofauantitvtheoryofmoney:atheoryassertingthatthequantityof

moneyavailabledeterminesthepricelevelandthatthegrowthrateinthe

quantityofmoneyavailabledeterminestheinflationrate.

D.ABriefLookattheAdjustmentProcess

1.Theimmediateeffectofanincreaseinthemoneysupplyistocreateanexcesssupplyof

money.

2.Peopletrytogetricofthisexcesssupplyinavarietyofways.

a.Theymaybuygoodsandserviceswiththeexcessfunds.

508?Chapter30/MoneyGrowthandInflation

b.Theymayusetheseexcessfundstomakeloanstoothersbybuyingbondsordepositing

themoneyinabankaccount.Theseloanswillthenbeusedtobuygoodsandservices.

c.Ineithercase,theincreaseinthemoneysupplyleadstoanincreaseinthedemandfor

goodsandservices.

d.Becausethesupplyofgoodsandserviceshasnotchanged,theresultofanincreasein

thedemandforgoodsandserviceswillbehigherprices.

Futurama,^Three-HundredBigBoys/fSeasoix4(0:30-1:15;2:34-2:38).

/Thegovernmentgivesallcitizens$300.Pricesimmediatelyrise.

Q

E.TheClassicalDichotomyandMonetaryNeutrality

1.Inthe18thcentury..DavidHumeandothereconomistswroteabouttherelationshipbetween

monetarychangesandimportantmacroeconomicvariablessuchasproduction,employment,

realwages,andrealinterestrates.

2.Theysuggestedthateconomicvariablesshouldbedividedintotwogroups:nominalvariables

andrealvariables.

a.Definitionofnominalvariables:variablesmeasuredinmonetaryunits.

b.Definitionofrealvariables:variablesmeasuredinphysicalunits.

3.Definitionofclassicaldichotomy:thetheoreticalseparationofnominalandreal

variables.

4.Pricesintheeconomyarenominal(becausetheyarequotedinunitsofmoney),butrelative

pricesarereal(becausetheyarenotmeasuredinmoneyterms).

5.Classicalanalysissuggestedthatdifferentforcesinfluencerealandnominalvariables.

a.Changesinthemoneysupplyaffectnominalvariablesbutnotrealvariables.

b.Definitionofmonetaryneutrality:thepropositionthatchangesinthemoney

supplydonotaffectrealvariables.

Mankiw'sanalogyofchangingthesizeofayardfrom36inchesto18inchesisa

usefulwaytoexplaintheconfusionthatachangeinaunitofmeasurement(ora

“unitofaccount)cancause.

F.VelocityandtheQuantityEquation

1.Definitionofvelocityofmonev:therateatwhichmoneychangeshands.

2.Tocalculatevelocity,wedividenominalGDPbythequantityofmoney.

velocity=nominalGDP/moneysupply

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3.If3isthepricelevel(theGDPdeflator),KisrealGDP,andM\sthequantityofmoney:

velocity=——

4.Rearranging,wegetthequantityequation:

ALTERNATIVECLASSROOMEXAMPLE:

Supposethat:

RealGDP=$5,000

Velocity=5

Moneysupply=$2,000

Pricelevel=2

Wecanshowthat:

MxV=PxY

$2,000x5=2x$5,000

$10,000=$10,000

5.Definitionofauantitveauation:theequationMxV-PxY,whichrelatesthe

quantityofmoney,thevelocityofmoney,andthedollarvalueoftheeconomy's

outputofgoodsandservices.

a.Thequantityequationshowsthatanincreaseinthequantityofmoneymustbereflected

inoneoftheotherthreevariables.

b.Specifically,thepricelevelmustrise,outputmustrise,orvelocitymustfall.

Figures

c.Figure3showsnominalGDP,thequantityofmoney(asmeasuredbyM2)andthe

velocityofmoneyfortheUnitedStatessince1960.Itappearsthatvelocityisfairlystable,

whileGDPandthemoneysupplyhavegrowndramatically.

6.Wecannowexplainhowanincreaseinthequantityofmoneyaffectsthepricelevelusing

thequantityequation.

a.Thevelocityofmoneyisrelativelystableovertime.

b.Whenthecentralbankchangesthequantityofmoney(M),itwillproportionatelychange

thenominalvalueofoutput{PxY).

Theeconomy'soutputofgoodsandservices(Y)isdeterminedprimarilybyavailable

resourcesandtechnology.Becausemoneyisneutral,changesinthemoneysupplydo

notaffectoutput.

510?Chapter30/MoneyGrowthandInflation

d.ThismustmeanthatincreasesproportionatelywiththechangeinM.

e.Thus,whenthecentralbankincreasesthemoneysupplyrapidly,theresultisahighlevel

ofinflation.

NowwouldbeagoodtimetodiscussthedebateinChapter23onwhethermonetary

policyshouldbemadebyruleordiscretion.

G.CaseStudy:MoneyandPricesduringFourHyperinflations

1.Hyperinflationisgenerallydefinedasinflationthatexceeds50%permonth.

Figure4I

2.Figure4showsdatafromfourclassicperiodsofhyperinflationduringthe1920sinAustria,

Hungary,Germany,andPoland.

3.Wecanseethat,ineachgraph,thequantityofmoneyandthepricelevelarealmostparallel.

4.TheseepisodesillustratePrinciple#9:Pricesrisewhenthegovernmentprintstoomuch

mnnpy.

H.TheInflationTax

1.Somecountriesusemoneycreationtopayforspendinginsteadofusingtaxrevenue.

2.Definitionofinflationtax:therevenuethegovernmentraisesbycreatingmoney.

3.Theinflationtaxislikeataxoneveryonewhoholdsmoney.

Pointoutthataninflationtaxisamoresubtleformoftaxationthanthestandard

formsoftaxation(incometax,salestax,etc.).

4.Almostallhyperinflationsfollowthesamepattern.

a.Thegovernmenthasahighlevelofspendingandinadequatetaxrevenuetopayforits

spending.

b.Thegovernmentsabilitytoborrowfundsislimited.

c.Asaresult,itturnstoprintingmoneytopayforitsspending.

d.Thelargeincreasesinthemoneysupplyleadtclargeamountsofinflation.

e.Thehyperinflationendswhenthegovernmentcutsitsspendingandeliminatesrheneed

tocreatenewmoney.

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5.FYI:HyperinflationinZimbabwe

a.Inthe2000s,Zmbabwefacedoneofhistory'smostextremeexamplesofhyperinflation.

b.Beforetheperiodofhyperinflation,oneZimbabwedollarwasworthabitmorethanone

U.S.dollar.

c.By2009,theZimbabwegovernmentwasissuingnotedwithdenominationsaslargeas

10trillionZimbabwedollars(whichwasworthlessthanthreeU.S.dollars).

I.TheFisherEffect

1.Recallthattherealinterestrateisequaltothenominalinterestrateminustheinflationrate.

2.This,ofcourse,meansthat:

nominalinterestrate=realinterestrate+inflationrate

a.Thesupplyanddemandforloanablefundsdeterminestherealinterestrate.

b.Growthinthemoneysupplydeterminestheinflationrate.

ALTERNATIVECLASSROOMEXAMPLE：

Realinterestrate=5%

Inflationrate=2%

Thismeansthatthenominalinterestratewillbe5%+2%=7%.

Iftheinflationraterisesto3%,thenominalinterestratewillriseto5%+3%=8%.

3.WhentheFedincreasestherateofgrowthoftherroneysupply,theinflationrateincreases.

Thisinturnwillleadtoanincreaseinthenominalinterestrate.

4.DefinitionofFishereffect:theone-for-oneadjustmentofthenominalinterestrate

totheinflationrate.

a.TheFishereffectdoesnotholdintheshortruntotheextentthatinflationis

unanticipated.

b.Ifinflationcatchesborrowersandlendersbysurprise,thenominalinterestratewillfailto

reflecttheriseinprices.

5.Figure5showsthenominalinterestrateandtheinflationrateintheU.S.economysince

1960.

III.TheCostsofInflation

A.AFallinPurchasingPov/er?TheInflationFallacy

512?Chapter30/MoneyGrowthandInflation

1.Mostindividualsbelievethatthemajorproblemcausedbyinflationisthatinflationlowersthe

purchasingpowerofaperson'sincome.

2.However,aspricesrise,sodoincomes.Thus,inflationdoesnotinitselfreducethe

purchasingpowerofincomes.

Pointouttostudentsthatpricesinvolvebothbuyersandsellers.Thisimpliesthatthe

higherpricespaidbyconsumersareexactlyoffsetbythehigherincomesreceivedby

_thesellers.Alsoremindstudentsthatworkersoftengetpayincreasesovertimeto

compensateforincreasesinthecostofliving.

B.ShoeleatherCosts

1.Becauseinflationerodesthevalueofmoneythatycucarryinyourpocket,youcanavoidthis

dropinvaluebyholdinglessmoney.

2.However,holdinglessmoneygenerallymeansmoretripstothebank.

3.Definitionofshoeleathercosts:theresourceswastedwheninflationencourages

peopletoreducetheirmoneyholdings.

4.Thiscostcanbeconsiderableincountriesexperiencinghyperinflation.

C.MenuCosts

1.Definitionofmenucosts:thecostsofchangingprices.

2.Duringperiodsofinflation,firmsmustchangetheirpricesmoreoften.

D.Relative-PriceVariabilityandtheMisallocationofResources

1.Becausepricesofmostgoodschangeonlyonceinawhile(insteadofconstantly),inflation

causesrelativepricestovarymorethantheywouldotherwise.

2.Wheninflationdistortsrelativeprices,consumerdecisionsaredistortedandmarketsareless

abletoallocateresourcestotheirbestuse.

E.Inflation-InducedTaxDistortions

1.Lawmakersfailtotakeinflationintoaccountwhentheywritetaxlaws.

2.Thenominalvaluesofinterestincomeandcapitalgainsaretaxed(nottherealvalues).

Studentsfindthissectionintriguing.Mosthavenotconsideredthefactthattaxlaws

donotdifferentiatebetweennominalandrealinterestincomeandcapitalgains,and

theysoonrealizetha:thiscanleadtoeffectsonratesofsaving.Workthroughan

-exampleoftheafter-taxrealinterestrateunderdifferentinflationscenariosasis

doneinthetext.

Table1]

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a.Table1showsahypotheticalexampleoftwoindividuals,livingintwocountriesearning

thesamerealinterestrate,andpayingthesametaxrate,butoneindividuallivesina

countrywithoutinflationandtheotherlivesinacountrywith8%inflation.

b.Thepersonlivinginthecountrywithinflationendsupwithasmallerafter-taxreal

interestrate.

3.Thisimpliesthathigherinflationwilltendtodiscouragesaving.

4.Apossiblesolutiontothisproblemwouldbetoindexthetaxsystem.

ALTERNATIVECLASSROOMEXAMPLE：

HannahandMileyeachearnarealinterestrateontheirsavingsaccountof3%.However,

Hannahlivesinacountrywitha1%inflationrate,whileMileylivesinacountrywitha10%

inflationrate.Bothcountrieshavea20%taxonincome.

HannahMiley

Realinterestrate3%3%

Inflationrate110

Nominalinterestrate413

Reducedinterestdueto20%tax0.82.6

After-taxnominalinterestrate3.211.4

Aftertaxrealinterestrate2.21.4

Notethattheafter-taxreturnonsavingislowerinMiley'scountrythaninHannah's.This

meansthatindividualsinMiley'scountrywillbelesslikelytosave.

F.ConfusionandInconvenience

1.Moneyistheyardstickthatweusetomeasureecoromictransactions.

2.Wheninflationoccurs,thevalueofmoneyfalls.Thisalterstheyardstickthatweuseto

measureimportantvariableslikeincomesandprofit.

G.ASpecialCostofUnexpectedInflation:ArbitraryRedistributionsofWealth

1.Example:SamStudenttakesouta$20,000loanat7%interest(nominal).In10years,the

loanwillcomedue.Afterhisdebthascompoundedfor10yearsat7%,Samwillowethe

bank$40,000.

2.Therealvalueofthisdebtwilldependoninflation.

a.Iftheeconomyhasahyperinflation,wagesandpriceswillrisesomuchthatSammaybe

abletopaythe$40,000outofpocketchange.

b.Iftheeconomyhasdeflation,Samwillfindthe$40,000agreaterburdenthanhe

imagined.

3.Becauseinflationisoftenhardtopredict,itimposesriskonbothSamandthebankthatthe

realvalueofthede3twilldifferfromthatexpectedwhentheloanismade.

514<?Chapter30/MoneyGrowthandInflation

4.Inflationisespeciallyvolatileanduncertainwhentheaveragerateofinflationishigh.

H.InflationIsBad,butDelationMayBeWorse

1.AlthoughinflationhasbeenthenorminrecentU.S.history,Japanhasbeenexperiencing

deflationinrecentyears.

2.Deflationleadstolowershoeleathercosts,butstillcreatesmenucostsandrelative-price

variability.

3.Deflationalsoresultsintheredistributionofwealthtowardcreditorsandawayfromdebtors.

I.CaseStudy:TheWizardofOzandtheFreeSilverDebate

1.MostpeopledonotknowthatthebookTheWizardofOzwaswrittenaboutU.S.monetary

policyinthelate19thcentury.

2.From1880to1896,theUnitedStatesexperienceddeflation,redistributingwealthfrom

farmers(withoutstandingloans)tobanks.

3.BecausetheUnitedStatesfollowedthegoldstandardatthistime,onepossiblesolutionto

theproblemwastostarttousesilveraswell.Thiswouldincreasethesupplyofmoney,

raisingthepricelevel,andreducetherealvalueof:hefarmers'debts.

4.Therehasbeensomedebateovertheinterpretationassignedtoeachcharacter,butitis

clearthatthestoryrevolvesaroundthemonetarypolicydebateatthattimeinhistory.

5.Eventhoughthosewhowantedtousesilverweredefeated,themoneysupplyintheUnited

Statesincreasedin1898whengoldwasdiscoveredinAlaskaandsuppliesofgoldwere

shippedinfromCanadaandSouthAfrica.

6.Within15years,priceswerebackupandthefarmerswerebetterabletohandletheirdebts.

TheWizardofOz,Chapter12(45:04-47:50)andChapter34(57:17-

1:01:14).ThesescenesdemonstratehowtheWizardofOzrelatedtothegold/silver

standarddebateinthelate1800s.

J.IntheNews:InflationaryThreats

1.Duringtherecessionof2008and2009,someindividualsbeganworryingaboutthe

possibilityofinflationintheU.S.

2.ThisisanarticlewrittenbyProfessorMankiwinTheNewYorkTTmesdetailingthese

concerns.

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Activity1—TheInflationFairy

Type:In-classdemonstration

Topics:Inflation

Materialsneeded:None

Time:10minutes

Classlimitations:Worksinanysizeclass

Purpose

Thisactivitydemonstratestheeffectsofinflation.

Instructions

Asktheclasstoconsidertheeffectofanovernightdoublingofprices.

Tellthemeverythingdoubledinpricewhiletheyslept.Asoftdrinkthatsoldforadollar,now

sellsfortwodollars;acarthatsoldfor$20,000nowsellsfor$40,000.

Thepriceoflabordoubledaswell,soajobpaying$6anhournowpays$12;a$30,000

annualsalarybecomesa$60,000annualsalary.

Thevalueofallassetsdoubledaswell.Stockpricesaretwicewhattheywereatyesterday's

closing,A$1,000bondbecomesa$2,000bond,A$35balanceinacheckingaccountbecome

$70,andsoon.

Debtshavealsodoubed.The$5borrowedfromaroommatebecomes$10.The$3,000in

studentloansbecomes$6,000.A$75,000homemortgagebecomesa$150,000mortgage.

Andevencashbalancesdouble.Theinflationfairysneaksinatnightandreplacesthe$10bill

intheirwalletwithanew$20bill.Theinflationfairyevendoublesthecoinsintheirpiggy

banks.

Ifthepricesofeverytningdoubledovernight,whatwouldhappen?

POINTSFORDISCUSSION

Ifthepricesofeverytningdoubledovernight,whatwouldhappen:NOTHING.

Ifallpricesadjustedperfectlytherewouldbenorealeffect.Everyonewouldhaveexactlythe

samepurchasingpower.Theyhavetwiceasmuchmoneybuteverythingcoststwiceas

much.Therehavebeennorelativechangesinprice.

Thisisafantasticrateofinflation:100%daily.Priceswouldincreasemorethanabillion-fold

inamonthatthisrateofpricechange.Yetzifeverythingadju