Principles+of+Economics+7th+Edition+Mankiw-Solution+Manual Chapter 30 17

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1、Chapter17/MoneyGrowthandInflation❖29730MONEYGROWTHANDINFLATIONWHAT’SNEWINTHESEVENTHEDITION:Therearenomajorchangestothischapter.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:Øwhyinflationresultsfromrapidgrowthinthemoneysupply.Øthemeaningoftheclassicaldichotomyandmonetary

2、neutrality.Øwhysomecountriesprintsomuchmoneythattheyexperiencehyperinflation.Øhowthenominalinterestraterespondstotheinflationrate.Øthevariouscoststhatinflationimposesonsociety.CONTEXTANDPURPOSE:Chapter17isthesecondchapterinatwo-chaptersequencedealingwithmoneyandpricesinthelongrun.Chapter16

3、explainedwhatmoneyisandhowtheFederalReservecontrolsthequantityofmoney.Chapter17establishestherelationshipbetweentherateofgrowthofmoneyandtheinflationrate.Thepurposeofthischapteristoacquaintstudentswiththecausesandcostsofinflation.Studentswillfindthat,inthelongrun,thereisastrongrelationship

4、betweenthegrowthrateofmoneyandinflation.Studentswillalsofindthattherearenumerouscoststotheeconomyfromhighinflation,butthatthereisnotaconsensusontheimportanceofthesecostswheninflationismoderate.KEYPOINTS:·Theoveralllevelofpricesinaneconomyadjuststobringmoneysupplyandmoneydemandintobalance.W

5、henthecentralbankincreasesthesupplyofmoney,itcausesthepriceleveltorise.Persistentgrowthinthequantityofmoneysuppliedleadstocontinuinginflation.©2012CengageLearning.AllRightsReserved.Maynotbescanned,copiedorduplicated,orpostedtoapubliclyaccessiblewebsite,inwholeorinpart.Chapter17/MoneyGrowth

6、andInflation❖297·Theprincipleofmonetaryneutralityassertsthatchangesinthequantityofmoneyinfluencenominalvariablesbutnotrealvariables.Mosteconomistsbelievethatmonetaryneutralityapproximatelydescribesthebehavioroftheeconomyinthelongrun.·Agovernmentcanpayforsomeofitsspendingsimplybyprintingmon

7、ey.Whencountriesrelyheavilyonthis“inflationtax,”theresultishyperinflation.·OneapplicationoftheprincipleofmonetaryneutralityistheFishereffect.AccordingtotheFishereffect,whentheinflationraterises,thenominalinterestraterisesbythesameamount,sothattherealinterestra