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Inflation and deflation https://www.youtube.com/watch?v=UMAELCrJxt0,…

- - - - Now it's more common for deflation to be caused by a liquidity trap
        
        https://www.youtube.com/watch?v=p47uvsjB5E0
        
        A liquidity trap is a situation in which output is below potential at a nominal interest rate of zero eliminating the central bank’s usual ability to raise output and inflation; also, zero-bound problem
        
        The delation role: liquidity traps only happen in deflation situations or in situations of very low levels of inflations
        
        Irrelevance of money growth: liquidity traps break the influence between money supply and inflation, because interest rates are already at it's lowest.
        
        Lower bound on interest rates: Zero bound limit on the nominal interest rate; a central bank cannot reduce i below zero, which limits its ability to stimulate the economy
        
        It is very hard for the central bank to escape a liquidity trap
        
        Expansionary fiscal policy may help but it increases debt.
        
        They can try by raising expected inflation or reduce long term interest rate
- - - - If you change the equation you get the Quantity equation
        of money relationship among the money supply, velocity, and nominal GDP
        
        This equation says that, for a given level of nominal GDP, an inverse relation- ship exists between velocity and money demand.
      - Long-run changes in velocity are driven primarily by changes in trans- action technologies
    - - Depends on factors that affect the economy’s productivity, such as new technologies.
    - - Money growth is determined by
        
        Government budget deficits
        
        Governments frequently spend more than they raise in taxes, creating deficits
        
        They issue bonds and borrow money to cover the debt
        
        This borrowing pushes up interest rates, which reduces investment and hurts economic growth
        
        Government sometimes have trouble selling those bonds so they sell them to the central bank
        
        With that the central bank is obligate to print money.
        
        1 more item...
        
        Central bank decision to keep inflation low
        
        Through tools such as open market operations
        https://www.youtube.com/watch?v=Vy6gSr2AtUE
        
        Desire for higher output which leads to higher money growth and higher inflation
        
        central bank also allows inflation to rise if it accommodates an adverse supply shock to keep GDP from falling below the potential.
- - - - Although nobody is certain of the consequences of high levels of inflation, it does not mean it's good
        
        There are different effects for
        
        Very high levels of inflation
        
        Shoe leather cost: which are inconveniences that result from holding less money when inflation is high
        
        Distracted firms which affects output growth
        
        Relative - price variability: prices change at different rate as a response for inflation
        
        Income inequality because poor people have more money holdings and different wage adjustments
        
        Moderate levels of inflation (Below 10%)
        
        Inflation uncertainty
        
        Inflation and taxes