ECN 204 Chapter 11: Chapter 11 - Money Growth & Inflation

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23 Apr 2012
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This chapter introduced the quantity theory of money to explain one of the 10 principles of economics (from chapter 1) Prices rise when the government prints too much money. Most economists believe the quantity theory is a good explanation of the long run behaviour of inflation. Inflation is an increase in the overall level of prices. Hyperinflation is an extraordinarily high rate of inflation. Quantity theory of money is used to explain the long run determinants of the price levels and the inflation rate. Inflation is an economy wide phenomenon that concerns the value of the economy"s medium of exchange. When the overall price level rises, the value of money falls. P is the price of a basket of goods, measured in money. 1/p is the value of , measured in goods. If p = , value of is candy bar. If p = value of is 1/3 candy bar.