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33. Module Types of Inflation, Disinflation, and Deflation. KRUGMAN'S MACROECONOMICS for AP*. Margaret Ray and David Anderson. What you will learn in this Module :. The classical model of the price level - PowerPoint PPT Presentation
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ModuleTypes ofInflation, Disinflation,and Deflation
KRUGMAN'SMACROECONOMICS for AP*
33
Margaret Ray and David Anderson
What you will learnWhat you will learn
in thisin this ModuleModule::
• The classical model of the price level
• Why efforts to collect an inflation tax by printing money can lead to high rates of inflation and even hyperinflation
• The types of inflation: cost-push and demand-pull
The Classical Model of MoneyThe Classical Model of Money and Prices and Prices
• %∆ M = %∆ PL
• Classical Model of the Price Level (E to E’’)...Good assumption given high inflation
•Classical Model ignores short-run changes ( E to E’)... Poor assumption given low inflation.
The Inflation TaxThe Inflation Tax
•Independent central banks issue fiat money
•Monetizing the debt
•Seignorage
•Inflation Tax
The Logic of HyperinflationThe Logic of Hyperinflation
•Impact of inflation tax on people’s decision to hold money
•Why print large sums of money?
•Taxi analogy
•Substituting commodities for currency
Moderate Inflation and Moderate Inflation and DisinflationDisinflation
• Cost-push inflation
• Demand-pull inflation
• Politically motivated
inflation
• Disinflation?Former Federal Reserve Chairman, Alan
Greenspan
The Output Gap and the The Output Gap and the Unemployment RateUnemployment Rate
•Output Gap
•Actual Output = Potential Output .: Actual Unemployment = Natural Rate of Unemployment
•Actual Output > Potential Output .: Actual Unemployment < Natural Rate of Unemployment
•Actual Output < Potential Output .: Actual Unemployment > Natural Rate of Unemployment