Money and Inflation - MF

7/25/2019 Money and Inflation - MF

1/3

1a. According to Nobel laurate Milton Friedman, Infation is an old, old disease.

We have had thousands o years o e!erience o it. "here is nothing sim!ler

than sto!!ing an infation # rom the technical !oint o vie$.%

I infation $ere a disease, then $hat is the cause o the disease& 'o$ do you

cure the disease& What are the e(ects o this disease& )lease $atch the

ollo$ing videos by Milton Friedman to ans$er the above *uestions.

htt!s+ $$$.youtube.com$atch&v-"'AaImNAand

htt!s+$$$.youtube.com$atch&v-/02o314c5

1b. )olicyma6ers in the 178s sa$ that infation $as costly, but ailed to gras!

that to get infation under control, they needed to use monetary !olicy, and only

needed to use monetary !olicy. "he act that today9s !olicyma6ers do

understand this refects the !roound im!act o Milton Friedman on monetary

economics. :o you agree $ith the broad statement that only monetary !olicy

can cure infation& 0!lain.

htt!+$$$.investo!edia.comas6ans$ers1;;;18;838>.as!

0change rate, ?ed or foating @India

htt!+$$$.thehindubusinessline.com!ortoliomacro=vie$echange=rate=?ed=

or=foatingarticle>B5557>.ece

What is Marism+

https://www.nyu.edu/projects/ollman/docs/what_is_marxism.php

============================================================================

======================

Milton Friedman believes that there has been a lot o actors that have been

associated $ith infation such as it being a communist and a ca!italist

!ro!aganda, such as Cugoslavia having very high rates o infation, as com!aredto D$it2erland $hich has a very controlled level o infation. 'o$ever that

doesn9t mean that a ca!italist nation isn9t associated $ith infation, as in the

case o Ereat ritain and Italy. 'e states the real actor or trac6ing infation is

the monetary !henomenon 'e goes on to sho$ that correlation through a series

o gra!hs sho$ing the change o the !rice inde or infation $ith res!ect to the

*uantity o money !er unit o out!ut. In cases o Ereat ritain, infation $as

associated $ith the trade unions, $hich tends to !ull u! infation rates, as

e!lained by the )hilli! curve. 'o$ever $hen com!ared $ith the charts o ra2il

and Ga!an, they have high infation rates ins!ire o the lac6 o infuence o the

trade unions.

Why is *uantity o money is directly associated $ith out!ut. Many years bac6, it

could be associated $ith discovery o gold or other !recious material. 0gs are
https://www.youtube.com/watch?v=THAaIZmxfNAhttps://www.youtube.com/watch?v=jE7zxo61Xc8http://www.investopedia.com/ask/answers/122214/how-does-monetary-policy-influence-inflation.asphttp://www.investopedia.com/ask/answers/122214/how-does-monetary-policy-influence-inflation.asphttp://www.investopedia.com/articles/03/020603.asphttp://www.thehindubusinessline.com/portfolio/macro-view/exchange-rate-fixed-or-floating/article3588893.ecehttp://www.thehindubusinessline.com/portfolio/macro-view/exchange-rate-fixed-or-floating/article3588893.ecehttps://www.nyu.edu/projects/ollman/docs/what_is_marxism.phphttps://www.youtube.com/watch?v=THAaIZmxfNAhttps://www.youtube.com/watch?v=jE7zxo61Xc8http://www.investopedia.com/ask/answers/122214/how-does-monetary-policy-influence-inflation.asphttp://www.investopedia.com/ask/answers/122214/how-does-monetary-policy-influence-inflation.asphttp://www.investopedia.com/articles/03/020603.asphttp://www.thehindubusinessline.com/portfolio/macro-view/exchange-rate-fixed-or-floating/article3588893.ecehttp://www.thehindubusinessline.com/portfolio/macro-view/exchange-rate-fixed-or-floating/article3588893.ecehttps://www.nyu.edu/projects/ollman/docs/what_is_marxism.phphttps://www.youtube.com/watch?v=THAaIZmxfNA


2/3

Haliornia and Australia discovered large *uantities o gold, in 15B8s, thus

!ushing u! infation. 'o$ever ater ending the lin6 to gold and having

government dominated money, $e have more scienti?c actors or varying

infation. "oday $e have infation as government create large *uantities o

money. Why do they do this& "o have enough or government s!ending. Do that

they !eo!le have more money to s!end, but $ithout increasing taes. ut thereal money comes in rom the taes, so there cannot be a scenario $here one

doesn9t a(ect the other. Infation is also a means o taation. )rinting money also

greatly a(ects infation.

Hom!ares notes $ith ta recei!ts rom the government. Eovernment gets

revenue in the orm o infation $ithout having to vote or a level o infation.

When your income increases 18, the !rices increase 18 but your dis!osable

income actually decreases. "hat is because you9re in a higher income brac6et

$hich means you end u! $ith less money. Do there is no actual ta cut but the

government giving bac6 a raction o your money. 0!lains ho$ government debt

actually goes do$n, ater the !ublic buys government bonds because they endu! less money through the bond re!ayment that the actual value o the bond in

!resent terms.

Decond actor $as ull em!loyment.

"hird actor or increased infation, is mista6en !olicies o the ederal ban6.

Hentral ban6 al$ays controlled the *uantity o money and never in charge o the

interest rates.

Infation is a $orld=$ide !henomenon but not an international !henomenon. It is

!roduced by monetary !olicies $ithin the country. Is increasing !roductivity the

solution or curbing infation& )roductivity also has very little say in the levels oinfation. Dto!!ing infation is not the cure, as long as the government aims

gro$th there $ill be infation. Infation $or6s a lot li6e alcoholism, the good

e(ects come ?rst, $ith the government !rinting more money $ith more out!ut

and more money su!!ly but the bad e(ects come later $ith an increase in

infation. When curing an alcoholic, it9s the other $ay around, the bad e(ects

come ?rst, i.e. initial slo$do$n o infation $ould slo$ do$n the economy

tem!orarily. Also many !eo!le also gain rom infation, mainly the ederal

government and also home o$ners through mortgage loans.

"he main im!lication o infation in the !ublic9s eyes is that they $ant the buying

!rice to decrease and selling !rice to decrease $hich is not !ossible logically.

Eives the corollary to a!!endi o!eration to com!are ho$ unem!loyment is not

correlated to infation. In act there are $ords li6e stagfation and sum!fation to

!rove that infation is !ossible during a !eriod o unem!loyment as $ellJ it9s

more li6e a side e(ect o a cure or infation.

Ko$ out!ut and unem!loyment are the only indications or lo$ infation& In the

long run there is no lin6 bet$een em!loyment and infation

"his mainly ha!!ens due to a time lag bet$een out!ut @gro$th and the rising

levels o infation. It9s not infation that causes a stimulus but a sudden s!i6e in

infation rates. Ki6e a country can be very comortable $ith a ?ed 18 infation

CoC $ith income and taes also increasing in !arallel.


3/3

LDA infation really started in the 17B8s during the orean War and it had a

cree!ing infation since then. "he e(orts o cutting do$n infation during the

1738 meant cutting do$n government gro$th and out!ut levels. Gohn F ennedy

bought things bac6 to normal by bringing by infation and since then LDA has

been on a u! and do$n /ourney o infation. ut each !ea6 $as higher than the

earlier !ea6 and each trough lo$er than the earlier trough. For LDA $heneverinfation seems to be recovering the government has gone ahead and !rinted

more money and has led to even more infation. Dlo$ gro$th rate has !rom!ted

the !eo!le o the LD and in turn the government to !ush drastic gro$th and thus

!ulling the infation u! again.

Documents

Money and Inflation - MF