Money Growth and Inflation Copyright 2006 Thomson Learning
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Money Growth and Inflation Copyright © 2006 Thomson Learning 30
Figure 1 Money Supply, Money Demand, and the Equilibrium Price Level Value of Money, 1/P (High) Price Level, P Money supply 1 1 3 1. 33 /4 / 12 Equilibrium value of money (Low) A (Low) 2 Equilibrium price level 4 / 14 Money demand 0 Quantity fixed by the Fed Quantity of Money (High) Copyright © 2004 South-Western
Figure 2 The Effects of Monetary Injection Value of Money, 1/P (High) MS 1 MS 2 1 1 1. An increase in the money supply. . . 3 2. . decreases the value of money. . . Price Level, P /4 12 / 1. 33 A 2 B / 14 (Low) 3. . and increases the price level. 4 Money demand (High) (Low) 0 M 1 M 2 Quantity of Money Copyright © 2004 South-Western
Figure 3 Money and Prices During Four Hyperinflations (a) Austria (b) Hungary Index (Jan. 1921 = 100) Index (July 1921 = 100) 100, 000 Price level 10, 000 Money supply 1, 000 100 Money supply 1, 000 1921 1922 1923 1924 1925 100 1921 1922 1923 1924 Copyright © 2004 South-Western 1925
Figure 3 Money and Prices During Four Hyperinflations (c) Germany (d) Poland Index (Jan. 1921 = 100) 100, 000, 000 1, 000, 000 10, 000, 000 100, 000 1, 000 10, 000 1 Index (Jan. 1921 = 100) 10, 000 Price level Money supply Price level 1, 000 Money supply 100, 000 1, 000 1921 1922 1923 1924 1925 100 1921 1922 1923 1924 Copyright © 2004 South-Western 1925
Figure 4 The UK Nominal Interest Rate and the Inflation Rate Copyright © 2004 South-Western
Table 1 How Inflation Raises the Tax Burden on Saving Copyright© 2004 South-Western
