Wednesday 261020

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 10 Money and Prices in the Long Run
Chapter 30 of 36 Money Growth and Inflation
Section 16 of 27
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One study found in U.S. newspapers inflation is the economic term most often mentioned, far ahead of second place unemployment and third productivity.
Inflation is widely discussed because it is considered to be a serious economic problem.
Is that true? And if so, why?
The typical person will say the answer is obvious: Inflation reduces the purchasing power of his dollars, so when prices rise, each of his dollars buys fewer goods.
So, it seems inflation directly lowers living standards.
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But there is a fallacy in this answer.
When prices rise buyers of goods pay more and at the same time sellers of goods get more.
Because most people earn their incomes by selling their labor people also are sellers, and firms are buyers.
Inflation of incomes goes together with inflation of prices of goods.
So, inflation does not necessarily reduce consumers’ real purchasing power.
The principle of this monetary neutrality is not widely understood leading many people to believe in the inflation fallacy that inflation necessarily reduces purchasing power.
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Real incomes are determined by real variables, including
· physical capital
· human capital
· natural resources
· the available production technology
Since the rate of rising incomes tend to match the rate of rising prices why
is inflation considered a problem?
Economists have identified several costs of inflation.
Each of these costs will be discussed in the following sections.
We will see ways in which persistent inflation does have some effect on real variables.
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physical capital, human capital, natural resources
butteki shihon, hito-teki shihon, ten'nen shigen
物的資本、人的資本、天然資源
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Create a line graph showing how incomes go up with the inflation rate over the last 60 years.
See Figure D – asked CGPT, Gemini, and Grok, Gemini was best.