ECON 1BB3 Lecture Notes - Nominal Interest Rate, Real Interest Rate, Hyperinflation

• School: McMaster University
• Department: Economics
• Course: ECON 1BB3
• Professor: Bridget O' Shaughnessy

Document Summary

There are 3 ways for a government to raise revenue: 1. Printing money tax on money (causes price to go up) If prices go up the dollars we have buy less, thus creating a tax on money, causing the value of money to go down. Hyperinflation is inflation that exceeds 50% per month. Example: suppose that a large cup of coffee at tim horton"s costs . 75 in january 1st. Nominal interest rate = real interest rate + inflation rate. Fisher effect: the one for one adjustment of the nominal interest rate to the inflation rate. In the long run, a change in money growth does not affect the real interest rate. Costs of inflation when inflation is what we expect it to be. Shoeleather costs: time we have to take transfer between saving and chequing. Menu costs: every time restaurant have to print new menu.