September 26: Lecture: Money, Prices, and Inflation

September 26: Lecture: Money, Prices, and Inflation

• Money

  • "Outside" money

  • "Inside" money

  • Money as readily-spendable wealth

    • Its convenience yield

    • Avoids the problem of the coincidence of wants

  • Medium of exchange

  • Store of value

  • Unit of account

• The Quantity Theory of Money

  • Demand for money

  • The quantity equation: MV = PY

  • Supply of money: reserves, cash, and the banking system
    • Definitions of money...

• Money and prices

  • The price level
  • Measuring the price level
  • The inflation rate
  • Inflation and the nominal interest rate: the Fisher effect
• The costs of moderate inflation
  • Disrupting the tax system
  • Degrading the efficiency of the price system
  • Expected and unexpected inflation
• The costs of hyperinflation
  • The sources of hyperinflation
    • If the government doesn't balance its budget, the market will--by levying the inflation tax...
• When money demand depends on the interest rate...
  • Stopping hyperinflation then requires a large increase in the real money stock--a neat trick if credibility depends on not printing too much money...