N.

GREGORY MANKIW
PRINCIPLES OF

ECONOMICS
Eighth Edition

CHAPTER Money Growth and

30 Inflation
Premium PowerPoint Slides by:
V. Andreea CHIRITESCU
Eastern Illinois University
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning
1
management system for classroom use.
 Look for the answers to these questions:
• How does the money supply affect inflation
and nominal interest rates?
• Does the money supply affect real variables
like real GDP or the real interest rate?
• How is inflation like a tax?
• What are the costs of inflation? How
serious are they?

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 2
management system for classroom use.
 Introduction
• Bab ini memperkenalkan teori kuantitas
uang untuk menjelaskan salah satu dari
Sepuluh Prinsip Ekonomi dari Bab 1:
Harga naik ketika pemerintah mencetak
terlalu banyak uang.
– Sebagian besar ekonom percaya bahwa
teori kuantitas adalah penjelasan yang
baik tentang perilaku inflasi jangka
panjang.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 3
management system for classroom use.
 The Value of Money
• P = the price level (e.g., the CPI or GDP
deflator)
– P is the price of a basket of goods, measured in
money.
• 1/P is the value of $1, measured in goods.
– Example: basket contains one candy bar.
• If P = $2, value of $1 is 1/2 candy bar
• If P = $3, value of $1 is 1/3 candy bar
Inflasi menaikkan harga dan menurunkan nilai
uang.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 4
management system for classroom use.
 The Quantity Theory of Money
– Dikembangkan oleh filsuf abad ke-18
David Hume dan ekonom klasik.
– Baru-baru ini diadvokasi oleh Pemenang
Hadiah Nobel Milton Friedman.
– Menegaskan bahwa jumlah uang
menentukan nilai uang
– Kami mempelajari teori ini menggunakan
dua pendekatan:
1. A supply-demand diagram
2. An equation
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 5
management system for classroom use.
 Money Supply (MS)
• Uang beredar di dunia nyata
– Ditentukan oleh bank sentral, sistem
perbankan, dan konsumen.
• Jumlah uang beredar dalam model ini
– Kami berasumsi bahwa bank sentral
secara tepat mengontrol MS dan
menetapkannya pada jumlah yang tetap.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 6
management system for classroom use.
 Money Demand (MD)
• Permintaan uang
– Mengacu pada seberapa banyak kekayaan
yang ingin dimiliki orang dalam bentuk cair.
– Tergantung pada P: peningkatan P mengurangi
nilai uang, jadi lebih banyak uang dibutuhkan
untuk membeli barang dan jasa.
• Jumlah uang yang diminta
– Berhubungan negatif dengan nilai uang
– Dan berhubungan positif dengan P, hal-hal lain
sama.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 7
management system for classroom use.
 The Money Supply-Demand Diagram

Value of Price
Money, 1/P Level, P
As the value of
money rises, the
1 1
price level falls.
¾ 1.33

½ 2

¼ 4

Quantity
of Money
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 8
management system for classroom use.
 The Money Supply-Demand Diagram

Value of Price
Money, 1/P MS1 Level, P

1 1

¾ Bank sentral 1.33

menetapkan MS
½ pada beberapa nilai 2
tetap, terlepas dari P.

¼ 4

$1000 Quantity
of Money
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 9
management system for classroom use.
 The Money Supply-Demand Diagram

Value of A fall in value of money Price

Money, 1/P (or increase in P) Level, P
increases the quantity
1 of money demanded: 1

¾ 1.33

½ 2

¼ 4
MD1

Harga naik, maka permintaan Quantity

akan uang akan tinggi of Money
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 10
management system for classroom use.
 The Money Supply-Demand Diagram

Value of P menyesuaikan untuk Price

Money, 1/P MS1 menyamakan jumlah Level, P
uang yang diminta
dengan jumlah uang
1 beredar. 1

¾ 1.33
eq’m eq’m
value A
½ 2 price
of
level
money
¼ 4
MD1

$1000 Quantity
of Money
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 11
management system for classroom use.
 The Effects of a Monetary Injection

Value of Price
Money, 1/P MS1 MS2 Level, P
Misal, bank sentral
menaikkan jumlah
1 Kemudian 1nilai
uang beredar
uang turun,
¾ dan P naik.1.33
A
½ 2
eq’m eq’m
value B
¼ 4 price
of MD1 level
money
$1000 $2000 Quantity
of Money
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 12
management system for classroom use.
 A Brief Look at the Adjustment Process
• From graph: Naiknya MS meningkatkan P
• How does this work? Short version:
– At the initial P, an increase in MS causes an
excess supply of money.
– People get rid of their excess money by
spending it on goods and services or by
loaning it to others, who spend it. Result:
increased demand for goods.
– But supply of goods does not increase,
so prices must rise.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 13
management system for classroom use.
 Real vs. Nominal Variables
• Nominal variables
– Mengukur diukur dalam satuan moneter
• Examples: nominal GDP, nominal interest rate
(rate of return measured in $), nominal wage
($ per hour worked)
• Real variables
– Diukur dalam satuan fisik.
• Examples: real GDP, real interest rate
(measured in output), real wage (measured
in output)
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 14
management system for classroom use.
 Real vs. Nominal Variables
• Prices are normally measured in terms of
money:
– Price of a compact disc: $15/cd
– Price of a pepperoni pizza: $10/pizza
• A relative price
– Is the price of one good relative to (divided by)
another
– Relative price of CDs in terms of pizza:
price of cd $15/cd
= = 1.5 pizzas per cd
price of pizza $10/pizza
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 15
management system for classroom use.
 Real vs. Nominal Wage
• An important relative price is the real wage:
– W = nominal wage = price of labor, e.g.,
$15/hour
– P = price level = price of goods and services,
e.g., $5/unit of output
• Real wage
– Is the price of labor relative to the price of
output:
W $15/hour
= = 3 units output per hour
P $5/unit of output
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 16
management system for classroom use.
 The Classical Dichotomy
• Classical dichotomy:
– Pemisahan teoritis variabel nominal dan riil
– Hume dan ekonom klasik: perkembangan
moneter mempengaruhi variabel nominal tetapi
tidak variabel riil:
• Jika bank sentral menggandakan jumlah
uang beredar:
• Kemudian semua variabel nominal —
termasuk harga — akan berlipat ganda
• Tetapi semua variabel real — termasuk harga
relatif — tidak akan berubah.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 17
management system for classroom use.
 The Neutrality of Money
• Monetary neutrality:
– Proposisi bahwa perubahan jumlah uang
beredar tidak mempengaruhi variabel riil
• Doubling money supply
– Menyebabkan semua harga nominal
menjadi dua kali lipat
– Apa yang terjadi dengan harga relatif?

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 18
management system for classroom use.
 The Neutrality of Money
• Initially, relative price of cd in terms of pizza
is
price of cd $15/cd
= = 1.5 pizzas per cd
$10/pizza
price of pizza
• After nominal prices double, The relative price
is unchanged.
price of cd $30/cd
= = 1.5 pizzas per cd
price of pizza $20/pizza

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 19
management system for classroom use.
 The Neutrality of Money
• Demikian pula, upah rill W/P tetap tidak berubah,
jadi:
– Kuantitas tenaga kerja yang ditawarkan tidak berubah
– Kuantitas tenaga kerja yng diminta tidak berubah
– Jumlah tenaga kerja tidak berubah
• Hal yang sama berlaku untuk penggunaan modal
dan sumber daya lainnya.
– Karena penggunaan semua sumber daya tidak
berubah, total output juga tidak diubah oleh
jumlah uang beredar.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 20
management system for classroom use.
 The Neutrality of Money
• Most economists believe
– Dikotomi klasik dan netralitas uang
menggambarkan perekonomian dalam
jangka panjang. (dibahas di ch 12)
• In later chapters
– Kita akan melihat bahwa perubahan
moneter dapat memiliki efek jangka
pendek yang penting pada variabel nyata.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 21
management system for classroom use.
 Perputaran Uang
• Velocity of money:
– Tingkat di mana uang berpindah tangan
• Notation:
P x Y= nominal GDP = (price level) x (real GDP)
M = money supply
V = velocity
• Velocity formula:
PxY
V =
M
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 22
management system for classroom use.
 The Velocity of Money
• Velocity formula V = P x Y / M
• Example with one good: pizza. In 2015:
Y = real GDP = 3000 pizzas
P = price level = price of pizza = $10
P x Y= nominal GDP = value of pizzas = $30,000
M = money supply = $10,000
V = velocity = $30,000/$10,000 = 3
Dolar rata-rata digunakan dalam 3 transaksi.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 23
management system for classroom use.
 Active Learning 1 Velocity of money
One good: corn.
The economy has enough labor, capital, and land
to produce Y = 800 bushels of corn.
V is constant.
In 2014, MS = $2000, P = $5/bushel.
• Compute nominal GDP and velocity in 2014.

Answers
• Nominal GDP = P x Y = $5 x 800 = $4000
• velocity V = P x Y / M = $4000 / $2000 = 2

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 24
management system for classroom use.
 U.S. Nominal GDP, M2, and Velocity 1960–2016

Velocity is fairly stable

over the long run.

Nominal GDP
M2
1960=100

Velocity

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 25
management system for classroom use.
 The Quantity Theory
• The quantity equation: M x V = P x Y
1. V stabil.
2. Perubahan M menyebabkan PDB nominal (P
x Y) berubah dengan persentase yang sama.
3. Perubahan M tidak mempengaruhi Y: uang itu
netral, Y ditentukan oleh teknologi & sumber
daya
4. Jadi, P berubah dengan persentase yang
sama seperti P x Y dan M.
5. Pertumbuhan jumlah uang beredar yang
cepat menyebabkan inflasi yang cepat.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 26
management system for classroom use.
 Active Learning 2 Quantity Theory of Money
One good: corn. The economy has enough
labor, capital, and land to produce Y = 800
bushels of corn. V is constant. In 2014, MS =
$2000, P = $5/bushel.
For 2015, the Fed (bank sentral) increases MS
by 5%, to $2100.
a. Compute the 2015 values of nominal GDP and P.
Compute the inflation rate for 2014–2015.
b. Suppose tech. progress causes Y to increase to
824 in 2015. Compute 2014–2015 inflation rate.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 27
management system for classroom use.
 Active Learning 2 Answers
Y = 800, V is constant.
In 2014, MS = $2000, P = $5/bushel.
For 2015, Bank Sentral mningkatkan MS by 5%, to $2100.
a. Compute the 2015 values of nominal GDP and P.
Compute the inflation rate for 2014–2015.
– 2014: P x Y = M x V, so V= 2
– 2015: nominal GDP = P x Y = M x V = 2100 x 2 =
$4200
– 2015: P = M x V / Y = 4200/800 = $5.25
– Inflation rate 2014-2015 = (5.25 – 5.00)/5.00 = 5%
(same as MS!)

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 28
management system for classroom use.
 Active Learning 2 Answers
Y = 800, V is constant.
In 2014, MS = $2000, P = $5/bushel.
For 2015, the Fed increases MS by 5%, to $2100.
b. Suppose tech. progress causes Y to increase to
824 in 2015. Compute 2014–2015 inflation rate.
– 2015: P = M x V / Y = 4200/824 = $5.10
– Inflation rate 2014-2015 = (5.10 – 5.00)/5.00 =
2%

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 29
management system for classroom use.
 Lessons about the quantity theory of money
• Jika PDB riil konstan,
– Kemudian tingkat inflasi = tingkat pertumbuhan
uang.
• Jika PDB riil tumbuh,
– Kemudian tingkat inflasi <tingkat pertumbuhan
uang.
• The bottom line:
– Pertumbuhan ekonomi meningkatkan # transaksi.
– Beberapa pertumbuhan uang diperlukan untuk
transaksi ekstra ini.
– Pertumbuhan uang yang berlebihan menyebabkan
inflasi.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 30
management system for classroom use.
 Hyperinflation
• Hyperinflation
– Inflation exceeding 50% per month.
• Prices rise when the government prints
too much money.
– Excessive growth in the money supply
always causes hyperinflation.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 31
management system for classroom use.
 Hyperinflation in Zimbabwe
• Large government budget deficits
– Led to the creation of large quantities of
money and high inflation rates.
date Zim$ per US$
Aug 2007 245
Sign posted in public restroom
Apr 2008 29,401
May 2008 207,209,688
June 2008 4,470,828,401
July 2008 26,421,447,043
Feb 2009 37,410,030
Sept 2009 355

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 32
management system for classroom use.
 The Inflation Tax
• The inflation tax
– Pendapatan yang diperoleh pemerintah dengan
menciptakan (mencetak) uang
– Seperti pajak atas setiap orang yang
memegang uang
• Saat pemerintah mencetak uang
• Tingkat harga naik
• Dan dolar di dompet Anda kurang berharga
– Di AS, pajak inflasi saat ini menyumbang kurang
dari 3% dari total pendapatan

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 33
management system for classroom use.
 The Fisher Effect
• Prinsip netralitas moneter
– Kenaikan tingkat pertumbuhan uang
menaikkan tingkat inflasi tetapi tidak
mempengaruhi variabel riil apa pun
• Because
Tingkat bunga riil = Tingkat bunga nominal –
Inflation rate
• We get
Tingkat bunga nominal = Tingkat bunga riil +
Inflation rate
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 34
management system for classroom use.
 The Fisher Effect
• Fisher effect
– Penyesuaian suku bunga nominal satu-
untuk-satu dengan tingkat inflasi
– Ketika Fed meningkatkan laju
pertumbuhan uang
– Hasil jangka Panjang:
• Tingkat inflasi yang lebih tinggi
• Suku bunga nominal lebih tinggi

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 35
management system for classroom use.
 U.S. Nominal Interest & Inflation Rates, 1960–2016
The close relation
between these
variables is evidence
for the Fisher effect.
Nominal
interest rate

Inflation rate

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 36
management system for classroom use.
 The Costs of Inflation
• Kesalahan inflasi
– "Inflasi merampas daya beli orang dari
dolar hasil jerih payahnya"
• When prices rise
– Buyers pay more
– Sellers get more
• Inflasi tidak dengan sendirinya
mengurangi daya beli riil masyarakat

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 37
management system for classroom use.
 U.S. Average Hourly Earnings & the CPI 1965 - 2016

Inflation causes
the CPI and
nominal wages
to rise together over
the long run.
Nominal wage

CPI

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 38
management system for classroom use.
 The Costs of Inflation
• Biaya kulit sepatu
– Sumber daya terbuang percuma ketika inflasi
mendorong orang untuk mengurangi
kepemilikan uang mereka (orang akan pergi
mengambil uang lagi shg nilai sepatu yg
digunakan berkurang)
– Bisa jadi substansial
• Biaya daftar menu manual (paper)
– Biaya perubahan harga
– Inflasi - meningkatkan biaya daftar menu yang
harus ditanggung perusahaan
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 39
management system for classroom use.
 The Costs of Inflation
• Misalokasi sumber daya dari variabilitas
harga-relatif:
– Perusahaan tidak semuanya menaikkan harga
pada saat yang sama, jadi harga relatif dapat
bervariasi
• Distorts the allocation of resources

• Confusion and inconvenience:

– Inflasi mengubah ukuran yang kita gunakan
untuk mengukur transaksi
• Merumitkan perencanaan jangka panjang dan
perbandingan jumlah dolar dari waktu ke waktu
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 40
management system for classroom use.
 The Costs of Inflation
• Tax distortions:
– Inflasi membuat pendapatan nominal
tumbuh lebih cepat dari pendapatan riil.
– Pajak didasarkan pada pendapatan
nominal, dan beberapa tidak disesuaikan
dengan inflasi.
– Jadi, inflasi menyebabkan orang
membayar lebih banyak pajak meskipun
pendapatan riil mereka tidak meningkat.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 41
management system for classroom use.
 Active Learning 3 Tax distortions
You deposit $1000 in the bank for one year.
CASE 1: inflation = 0%, nom. interest rate = 10%
CASE 2: inflation = 10%, nom. interest rate = 20%
a. In which case does the real value of your deposit
grow the most?
Assume the tax rate is 25%.
b. In which case do you pay the most taxes?
c. Compute the after-tax nominal interest rate,
then subtract inflation to get the after-tax real
interest rate for both cases.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 42
management system for classroom use.
 Active Learning 3 Answers
Deposit $1000.
CASE 1: inflation = 0%, nom. interest rate = 10%
CASE 2: inflation = 10%, nom. interest rate = 20%
a. In which case does the real value of your deposit
grow the most?
In both cases, the real interest rate is 10%,
so the real value of the deposit grows 10%
(before taxes).

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 43
management system for classroom use.
 Active Learning 3 Answers
Deposit $1000. Tax rate =25%.
CASE 1: inflation = 0%, nom. interest rate = 10%
CASE 2: inflation = 10%, nom. interest rate = 20%

b. In which case do you pay the most taxes?

CASE 1: interest income = $100,
so you pay $25 in taxes.  25%*100$
CASE 2: interest income = $200,
so you pay $50 in taxes.  25%*200$

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 44
management system for classroom use.
 Active Learning 3 Answers
Deposit $1000. Tax rate =25%.
CASE 1: inflation = 0%, nom. interest rate = 10%
CASE 2: inflation = 10%, nom. interest rate = 20%
c. Compute the after-tax nominal interest rate,
then subtract inflation to get the after-tax real
interest rate for both cases.
CASE 1:nominal = 0.75 x 10% = 7.5%
real = 7.5% – 0% = 7.5%
CASE 2:nominal = 0.75 x 20% = 15%
real = 15% – 10% = 5%

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 45
management system for classroom use.
 Active Learning 3 Summary and lessons
Deposit $1000. Tax rate =25%.
CASE 1: inflation = 0%, nom. interest rate = 10%
CASE 2: inflation = 10%, nom. interest rate = 20%
Inflation…
• raises nominal interest rates (Fisher effect) but not
real interest rates
• increases savers’ tax burdens
• lowers the after-tax real interest rate

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 46
management system for classroom use.
 Redistribusi Kekayaan Sewenang-wenang

• Unexpected inflation
– Mendistribusikan kembali kekayaan di
antara populasi
• Bukan karena prestasi
• Bukan karena kebutuhan
– Mendistribusikan kembali kekayaan di
antara debitur dan kreditor
• Inflasi: mudah berubah dan tidak pasti
– Saat rata-rata tingkat inflasi tinggi
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 47
management system for classroom use.
 The Costs of Inflation
• All these costs
– Cukup tinggi untuk ekonomi yang
mengalami hiperinflasi.
• For economies with low inflation (< 10%
per year),
– Biaya ini mungkin jauh lebih kecil,
meskipun ukuran pastinya masih
diperdebatkan.

© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 48
management system for classroom use.
 Conclusion
Harga naik ketika pemerintah mencetak
terlalu banyak uang.
– Kami melihat bahwa uang itu netral dalam
jangka panjang, hanya mempengaruhi
variabel nominal
• In later chapters
– Uang memiliki efek penting dalam jangka
pendek pada variabel nyata seperti output
dan lapangan kerja
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 49
management system for classroom use.
 Summary
• To explain inflation in the long run, economists
use the quantity theory of money.
• The price level depends on the quantity of
money, and the inflation rate depends on the
money growth rate.
• The classical dichotomy is the division of
variables into real and nominal. The neutrality
of money is the idea that changes in the money
supply affect nominal variables but not real
ones. Most economists believe these ideas
describe the economy in the long run.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 50
management system for classroom use.
 Summary
• The inflation tax is the loss in the real value of
people’s money holdings when the government
causes inflation by printing money.
• The Fisher effect is the one-for-one relation
between changes in the inflation rate and
changes in the nominal interest rate.
• The costs of inflation include menu costs,
shoeleather costs, confusion and
inconvenience, distortions in relative prices and
the allocation of resources, tax distortions, and
arbitrary redistributions of wealth.
© 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use
as permitted in a license distributed with a certain product or service or otherwise on a password-protected website or school-approved learning 51
management system for classroom use.