Please enable JavaScript.
Coggle requires JavaScript to display documents.
INFLATION AND DEFLATION - Coggle Diagram
INFLATION AND DEFLATION
In 1974 president Gerald Ford called inflation "public enemy number one"
Deflation: sustained period of negative inflation
Hyperinflation: Inflation of more than 50 percent per month
Money and inflation in the long run
monetary policy
affects real variables
output
Nominal variables
inflation rate
Influences output in the short run, but it is neutral in the long run
velocity of money
ratio of nominal GDP to the money supply (v=PY/M) shows how quickly money moves through the economy
quantity ecuation of money
relationship among the money supply, velocity and nominal GDP (MV=PY)
This ecuation says that for a given level of nominal GDP, an inverse relationship exists between velocity and money demand
https://youtu.be/Jc8iJSSYtoQ
deriving the inflation rate
inflation rate is the growth rate of the price level
the countries with high inflation rates are those with high money growth
the Phillips curve again
higher money growth leads to higher inflation
A rise in money growth sets off a series of effects that raise inflation. A fall in money growth has the opposite effects, reducing inflation
what determines money growth?
determinants of money growth and inflation
commodity money= gold coins or paper money exchangeable for gold.
fiat money and inflation: pieces of paper that are not exchangeable for any commodity.
the output-inflation trade-off
a rise in output which raises inflation through the Phillips curve. This output boom increases people`s incomes and reduces unemployment.
seignioriage and very high inflation
printing money: financing government budget deficits by selling bonds to the central bank
seignioriage revenue: revenue the government receives from printing money
Deflation and the liquidity trap
liquidity trap: also zero bound problem
the role of deflation: the lower bound on the real interest rate is . this bound is negative if but is positive under deflation
any escaping a liquidity trap?
raising expected inflation
https://www.brookings.edu/blog/up-front/2020/11/30/what-are-inflation-expectations-why-do-they-matter/
using fiscal policy
reducing long-term interest rates
the costs of inflation
inflation on taxes
shoe leather costs
distracted firms
very high inflation
relative-price variability
the inflation falacy
income inequality
moderate inflation
after-tax real interest rate (r´) the interest rate adjusted for both taxes and inflation
central banks believe that inflation is very harmful
