ECON 1 Lecture 22: Inflation
Document Summary
Eco 1 : introduction to economics- lecture 22: inflation. Inflation arises when prices rise to account for changes in the value of money. Right now it is not a pressing problem. But it was in the past and it will be in the future. During the 2002-2014, prices rose at an average rate of 2% per year. The price level more than doubled over the decade. Reflects how much wealth people want to hold in liquid form. It also depends on price level p. an increase in p reduces the value of money, so more money is required to buy goods. Quality of money demanded is relative to the size of p. Supply curve is vertical because it is set exogenously by the fed. The fed can increase the supply of money whenever it wants. The combination of both d and s is the value of money. P is the price of a basket of goods, measured in money.
