1/

100
150
200
250
300

0
50
7/ /191
1 3
1/ /191
1 5
7/ /191
1 8
1/ /192
1 0
7/ /192
1 3
1/ /192
1 5
7/ /192
1 8
1/ /193
1 0
7/ /193
1 3
1/ /193
1 5
7/ /193
1 8
1/ /194
1 0
7/ /194
1 3
1/ /194
1 5
7/ /194
1 8
1/ /195
1 0
7/ /195
1 3
1/ /195
1 5
7/ /195
1 8
1/ /196
1 0
7/ /196
1 3
1/ /196
CPI

1 5
7/ /196
1 8
1/ /197
1 0
7/ /197
1 3
1/ /197
1 5
7/ /197
1 8
1/ /198
1 0
7/ /198
1 3
1/ /198
1 5
7/ /198
1 8
1/ /199
1 0
7/ /199
1 3
1/ /199
1 5
7/ /199
1 8
1/ /200
1 0
7/ /200
1 3
1/ /200
1 5
7/ /200
1 8
1/ /201
1 0
7/ /201
1/ 3
20
15
 CPI
300

250

200

150

100

50

0
0 0 0 00 0 00 1 001 00 2 0 02 003 00 4 00 4 00 5 0 05 0 06 00 7 00 7 008 0 08 0 09 0 09 01 0 0 11 01 1 01 2 0 12 01 3 0 14 01 4 01 5 015
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
/1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/ /1/
1 8 3 10 5 12 7 2 9 4 11 6 1 8 3 10 5 12 7 2 9 4 11 6 1 8 3 10
Nominal GDP, the Quantity of Money, and the Velocity of Money

7
Money and Prices during Four Hyperinflations

9
10
11
12
 Zimbabwe Inflation
Date Rate
1980 7%
1981 14%
1982 15%
1983 19%
1984 10%
1985 10%
1986 15%
1987 10%
1988 8%
1989 14%
1990 17%
1991 48%
1992 40%
1993 20%
1994 25%
1995 28%
1996 16%
1997 20%
1998 48%
1999 56.90%
2000 55.22%
2001 112.10%
2002 198.93%
2003 598.75%
2004 132.75%
2005 585.84%
2006 1281.11%
2007 66212.30%
2008 231150888.87%
 Annual Percent Change
0.25

0.2

0.15

0.1

0.05

0
60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20

-0.05

Money Prices
What is the effect of changes in oil prices on the overall price
level/inflation?

Cushing, OK, WTI, Spot Price

160

140

120

100

80

60

40

20

0
86 86 87 87 88 89 89 90 91 91 92 92 93 94 94 95 96 96 97 97 98 99 99 00 01 01 02 02 03 04 04 05 05 06 07 07 08 09 09 10 11 11 12 12 13 14 14 15 16
, 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 19 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20 , 20
13 29 23 03 19 02 13 31 14 28 10 24 13 22 06 23 05 20 03 18 06 18 05 22 04 17 02 12 26 10 21 04 14 28 15 31 20 09 28 18 04 23 12 28 19 07 22 11 25
n g r c l r t y n g r v l b t y n g r v l b t y n g r v n b p y c l r t n b p y n g r v l r t n n
Ja Au Ap De Ju Ma Oc Ma Ja Au Ap No Ju Fe Oc Ma Ja Au Ap No Ju Fe Oc Ma Ja Au Ap No Ju Fe Se Ma De Ju Ma Oc Ju Fe Se Ma Ja Au Ap No Ju Ma Oc Ju Ja
U.S. annual consumption of oil:

Expenditure if price is $40/Barrel:

Expenditure if price is $140/Barrel:

Change in U.S. expenditures:

Change in U.S. GDP:

1) Recall fictitious firm auction of 1,000 items that cold be purchased
with 20,000 points:

2) Assume only 2 kinds of goods: A and B – 500 of each. Each type of

good sells for $20.

3) Now assume the price of A gets bid up to $30.

What are the real costs of inflation?
1) Shoe Leather costs
Costs people time, effort and money to avoid the loss of purchasing
power of money from inflation.
2) Menu Costs
The costs to firms of frequently changing prices
3) Inflation Tax
The government’s power to control the creation of money allows it to
capture some of the nation’s output.
Example:

Initial: 20,000 points for 1000 items

Final: President creates 2000 additional points that he spends himself