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When Money Dies
InflationCause - Printing money faster than new goods and services are created
Effect - Rising prices
Does money create wealth?
More Money
Make more stuff
Raise prices
Big Mac = 10 SR
1 SR =1/10 of a Big Mac
=
1 SR =1/10 of a Big Mac
Central Bank - SAMA
Money Supply
Dr. Fahad Al Mubarak
Chairman of the BoardGovernor
Saudi Arabia Monetary AgencySAMA
5. Greece, Oct. 1944Highest monthly inflation: 13,800%
Prices doubled every 4.3 days
4. Germany, Oct. 1923Highest monthly inflation: 29,500%
Prices doubled every: 3.7 days
A 1000 Mark banknote, over-stamped in red with "Eine Milliarde Mark" long scale (1,000,000,000 mark), issued in Germany during the hyperinflation of 1923
3. Yugoslavia, Jan. 1994Highest monthly inflation: 313,000,000%
Prices doubled every: 1.4 days
1. Hungary 1946Highest monthly inflation: 13,600,000,000,000,000%
Prices doubled every: 15.6 hours
2. Zimbabwe, Nov. 2008Highest monthly inflation: 79,600,000,000%
Prices doubled every: 24.7 hours
1833 - 1932 $18.94 to $20.69
$1,600 80x Lost 98.75% of value relative to gold in 80 Years
Money Demand
Liquid
Credit Cards ATMs
Money Demand
Opportunity Cost
Potential Profit
Milton Friedman(1912 - 2006)
Quantity Theory of Money
The quantity of money determines
its value
0
0.50
1.00
1.50
2.00
1 10 20 30 40 50
Value of Money
Quantity of Money
MoneyDemand
MoneySupply
How to get an
A on Exam 4
0
0.50
1.00
1.50
2.00
1 10 20 30 40 50
Value of Money
Quantity of Money
MoneyDemand
MoneySupply
The Life of a Riyal
18 months
M x V = P x Q
Quantity Equation
M = MoneyV = VelocityP = PriceQ = Output
Government Spending
TaxBorrow
Inflation TaxWhen the government
prints more money, anyone who has
money loses wealth
Inflation
Winners - Borrowers
Losers - Lenders
Nominal = Real + Inflation
If you know two you can calculate the other oneIf N = 12 and R = 10,
what is I?
N = R + I
Formulas
RR = 1÷ MM
N = R + I
RR = 1÷ MM
FactsSaudi Reserve Ratio: 7%
Saudi ORR: 2%
Saudi Money Supply Growth: 12%
Saudi Inflation Rate: 3.9%
Country with recent hyperinflation: Zimbabwe
Country with recent bank run: Cyprus
