Chapter 10MoneyGrowthMoney Demand,andMonetaryPolicyMcGraw-Hilly/rwinCopyright 2006byTheMcGraw-Hill Companies,Inc.All rights reserved
McGraw-Hill/Irwin Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Money Growth, Money Demand, and Monetary Policy
CONTENS福O10.1InflationandMoneyGrowth10.2Quantity Theory of MoneyandVelocityof Money10.3DemandforMoney10.4TargetingMoneyGrowthinaLow-InflationEnvironment20-2
20-2 CONTENS 10.1 Inflation and Money Growth 10.2 Quantity Theory of Money and Velocity of Money 10.3 Demand for Money 10.4 Targeting Money Growth in a Low-Inflation Environment
10.1 Inflation and Money Growth0Figure20.1Inflation and Money Growth,All Countries,1981-20031,200Nicaragua450eAngola800BoliviaPeruUkraineArmeniaBrazil-Belarus400ArgentinaAzerbaijan4008001,200AverageAnnualMoneyGrowth(%)20-3
20-3 10.1 Inflation and Money Growth
Inflation andMoney GrowthCConclusions:To avoid sustained episodes of highinflation, a central bank must beconcerned with money growth20-4
20-4 Inflation and Money Growth • Conclusions: • To avoid sustained episodes of high inflation, a central bank must be concerned with money growth
Inflation and Money GrowthCFigure20.2Inflationand Money Growth:Moderate-lnflationCountries,1981-2003504540(30201002030104050AverageAnnualMoneyGrowth(%)20-5
20-5 Inflation and Money Growth
Inflation andMoney GrowthCFigure20.3 Money Growth and Inflation45°lineInflation>MoneyGrowthMoneyGrowth>InflationAverageAnnualMoneyGrowth20-6
20-6 Inflation and Money Growth
Inflation andMoney GrowthCIt is impossible to have high, sustainedinflation without monetary accommodation.Something beyond just differences inmoney growth accounts for the differencesininflationacrosscountries20-7
20-7 Inflation and Money Growth • It is impossible to have high, sustained inflation without monetary accommodation. • Something beyond just differences in money growth accounts for the differences in inflation across countries
Expenditure Weights in the U.S0ConsumerPriceIndexFigure 20.4 Expenditure Weights in the U.S.Consumer Price IndexFood&beverages(15.4%Housing (42.1%)Apparel (4.0%)Transportation(16.9%)Medicalcare(6.1%)Recreation(5.8%)Education&communication(5.9%)Other(3.8%)20-8
20-8 Expenditure Weights in the U.S. Consumer Price Index
10.2TheQuantityTheoryandatheVelocityofMoney1. Velocity of money (V)The number of times each dollaris used(per unit of time)20-9
20-9 1. Velocity of money (V) • The number of times each dollar is used (per unit of time). 10.2 The Quantity Theory and the Velocity of Money
TheQuantityTheoryandOthe Velocity of MoneyQuantity of Money(M) x Vel ocity =Nominal GDPNominal GDP = Price Level(P) × Output(Y)20-10
20-10 Nominal GDP Price Level(P) x Output(Y) Nominal GDP Quantity of Money(M) x Vel ocity = = The Quantity Theory and the Velocity of Money