Thursday 924

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 10 Money and Prices in the Long Run
Chapter 29 of 36 The Monetary System
Section 01 of 29
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Chapter 30 topics
The Classical Theory Of Inflation
The Level Of Prices And The Value Of Money
Money Supply, Money Demand, And Monetary Equilibrium
The Effects Of A Monetary Injection
A Look At The Adjustment Process
The Classical Dichotomy And Monetary Neutrality
Velocity And The Quantity Equation
Money And Prices During Four Hyperinflations
The Inflation Tax
The Fisher Effect
The Inflation Fallacy
Shoeleather Costs
Menu Costs
Relative-Price Variability And The Misallocation Of Resources
Inflation-Induced Tax Distortions
Confusion And Inconvenience
Inflation Causing Arbitrary Redistributions Of Wealth
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price variability
kakaku hendō
価格変動
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ChatGPT summary of Chapter 30 - Money Growth and Inflation:
Chapter 30 explains sustained inflation is primarily caused by the money supply growing faster than the economy’s production of goods and services.
Mankiw uses the quantity theory of money and the equation M × V = P × Y to show the relationship among the money supply, the velocity of money, the price level, and real output.
M = money supply
V = velocity of money, or how often the average dollar is spent
P = overall price level
Y = real output, or real GDP
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If velocity is relatively stable and real output is determined mainly by resources and productivity, rapid money growth produces higher prices.
This leads to the ideas of monetary neutrality and the classical dichotomy: in the long run, changes in the money supply mainly affect nominal variables such as prices, wages, and nominal interest rates rather than real output or employment.
The chapter also explains the Fisher effect, under which higher than expected inflation tends to raise nominal interest rates.
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Mankiw explains inflation can be costly even when people expect it.
It reduces the value of money, encourages people to spend time and effort avoiding cash holdings, forces businesses to change prices more often, and makes it harder to tell whether a particular price change reflects inflation or a real change in supply and demand.
Inflation can distort taxes, complicate long-term contracts, and unexpectedly redistribute wealth between borrowers and lenders.
Governments can also create an inflation tax by financing spending through money creation, which reduces the real value of money held by the public.
The chapter’s main conclusion is long-run price stability requires preventing money growth rate from persistently exceeding the growth rate of real economic output.