EC 202 Lecture Notes - Lecture 3: Gdp Deflator, Economic Equilibrium, Fisher Equation
30 May 2018
School
Department
Course
Professor
Week 3
● Chapter 8 cont.
○ Review
■Price level: a number that summarizes the average prices in a given year
■Inflation: the percentage change in the price level
●Increase in price level is inflation
●Decrease in the price level is deflation
■Unpredictable inflation results in:
●Wealth redistribution
○ Inflation can make the contracted wages or prices seem
much higher or lower than they intended
●Wasted resources
○ Menu cost: changing prices all the time uses time and
resources
●Price confusion/uncertainty
○ Setting prices or making any decisions becomes difficult
due to uncertainty of prices\
○ May also discourage people from starting new businesses
■Hyperinflation: Zimbabwe
●March 2007-2009
●Huge deficits under Robert Mugabe→ government paid the
deficits by printing money
● Hyperinflation: inflation of more than about 50% per month
●September 2008: IMF estimates inflation is about 489 billion
percent
●Prices changed by the hour
●Government tried to set price ceilings on goods → food shortages
and a large blackmarket
● Currency reforms: Zimbabwean dollar was redenominated
several times
○ What was once one Zimbabwean dollar to one US dollar
was now one trillion: one
○ Inflation continued to rise
●Foreign currencies started to be accepted:
○ US dollar
○ Australian dollar
○ South African rand
○ Botswana pula
○ Euro
○ British pound
○ Japanese yen
○ Chinese yuan
○ Indian rupee
Document Summary
Price level: a number that summarizes the average prices in a given year. Inflation: the percentage change in the price level. Decrease in the price level is deflation. Inflation can make the contracted wages or prices seem much higher or lower than they intended. Menu cost: changing prices all the time uses time and resources. Setting prices or making any decisions becomes difficult due to uncertainty of prices\ May also discourage people from starting new businesses. Huge deficits under robert mugabe government paid the deficits by printing money. Hyperinflation: inflation of more than about 50% per month. September 2008: imf estimates inflation is about 489 billion percent. Government tried to set price ceilings on goods food shortages and a large blackmarket. Currency reforms: zimbabwean dollar was redenominated several times. What was once one zimbabwean dollar to one us dollar was now one trillion: one. June 2015: government demonetized the zimbabwean dollar.
