Questions tagged [inflation]

Inflation is generalized increase of prices of goods and services in an economy, along with a corresponding fall in the purchasing value of money. The rate of inflation refers to the increase of the price of goods and services over time.

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1answer
33 views

What is the difference between “borrowing” money and “printing” money?

When a country's government has a budget shortfall, that country has to find some way to pay its contractors/emplooyees. Unlike a normal company, the government can't simply go to the bank and ask to ...
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Why don't Governments do away with the optics of taking on debt against new currency, and instead issue a limited currency every year (say 5% of GDP)?

Governments engage in the optical illusion of taking on debt against issued currency. The debt is effectively owed by the Government to itself. The value of the debt is completely controlled and ...
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Oliver Hart said that financing deficits by printing money can lead to hyperinflation “once the economy is close to full capacity”. What does he mean?

In response to a poll on Modern Monetary Theory, Nobel Laureate Oliver Hart said that Governments financing deficits by printing more money "can quickly lead to inflation or even hyperinflation ...
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For stability, is there a limit to the sovereign debt that a Government owes to itself against issued fiat currency?

Looking beyond the optical illusion of Governments owing debt to Central Banks, Governments effectively owe themselves the sovereign debt created against issued fiat currency. By definition, there ...
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Small vlillage impact on Inflation

Let's suppose we have the opportunity to print unlimited money and give each of the 1,000 inhabitants of a small village $100,000 per person. Does this action boosts the inflation of the country? How ...
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111 views

Why should prices come down (in theory) in an educated society with a well-run government?

In Chapter 1 of Robert Kiyosaki's "Rich Dad, Poor Dad", the rich dad says: "In an educated society with a well-run government, prices should actually come down". Is there any ...
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How is high liquidity created and how can it affect a country's economy?

It is said that Iran struggles with high liquidity and I've heard that it's one of the reasons behind its hyperinflation. Please explain in layman's terms: Why is high liquidity created and what ...
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1answer
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Is there an alternative to currency to facilitate exchange of goods and services?

Say I have collected a bunch of seashells. Tom wants to have my seashells. Therefore the seashells have value and I have just created wealth. And so Tom buys my seashells for \$10. But even though I ...
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Are government bonds ever profitable

With most government bonds having interest rates being rather low, (0.254%) This being a whole 1.75% below target inflation (To clarify all rates are UK rates, and UK target inflation is 2%), and 1.54%...
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Lucas' islands model and a firm's profits

I was doing some reading on Lucas' islands model and how aggregate supply can change depending on agent's expectations regarding monetary policy. It's always assumed that there are "n" ...
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What is the point of monetary policy if most monetary variables are determined by non-monetary factors?

Monetary policy today is largely focused on setting interest rates in order to reach an inflation target / value of the currency. Interest rates are used to affect inflation by changing the demand and ...
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New Keynesian Phillips curve with time-varying elasticity of demand

I am looking for a paper or notes which derive the New Keynesian Phillips curve with Calvo price staggering and time-varying elasticity of demand (i.e. markup shocks). Specifically, I am trying to ...
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1answer
53 views

What would happen in a modern economy if growth plateaus?

According to a Wikipedia article on a United Nations report, The UN Population Division report of 2019 projects world population to continue growing, although at a steadily decreasing rate, and to ...
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Does real GDP control for changing preferences?

This claims that real gdp does not account for changing preferences. However, if preferences were to change for sneakers and subsequently pushes the price up, won't this be reflected in the changed ...
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312 views

How do you stop Hyperinflation in a Nation?

In history, I learned that the Weimar Republic had hyperinflation as a consequence of leading and striving war during World War I and placed a new currency named German Rentenmark which would be about ...
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Can printing money with simultaneous government intervention to increase supply prevent inflation?

Just as above...If we print money and simultaneously introduce some sort of government intervention in order to increase supply/ production, then supply and demand would be 'balanced' and therefore ...
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Would a Federal Job Guarantee hurt the economy?

I've been reading about how a job creation program would disrupt the private sector. One of the main things I kept seeing was that the a FJG will result in the elimination of thousands of jobs. So, ...
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1answer
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Intuition for effect of interest rate changes in New Keynesian model

I am trying to understand the intuition behind the effect of an interest rate change in a simple New Keynesian model (or really in any sticky price model). As a simple example, I take (roughly) the ...
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CPI dataset from BLS

I hope this question is not inconvenient for any of you, so I would appreciate if you do not mark it as not useful. I want to work with the data of the CPI from the BLS (I am not American, and this is ...
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1answer
49 views

Why Keynesians prefer short run measures despite straight long-run Phillips curve?

I was studying about the Monetarists' and Keynesians' view of the Phillips curve and natural rate theory of Friedman. It seems intuitive to me as to why Friedman argues that using an expansionary ...
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How would a global Robin Hood deed affect the economy? [closed]

In one fiction series about a dystopian world, a small group of wealthy criminals owned a large fraction of the world's cash, which was on their bank accounts in a single offshore bank. In the happy ...
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3answers
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What is meant by an inflation rate spoken in the typical news?

The news usually says that inflation for a certain month is say $2.57\%$. It is never said relative to what. Should I assume that is relative to the previous month? If that's so, then the more ...
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Could you solve inflation by creating more goods?

If inflation is caused by there being more money to comparison to goods, if you increased production of goods to match the pre-inflation ratios of money to goods, would you effectively solve inflation?...
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Could eliminating all taxes and only creating new money theoretically work?

Imagine you had the opportunity to found a new country from scratch (in 2020). Value exchange would be digital, where only the state can create new currency units. Instead of relying on income tax ...
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Why are the YTMs of TIPS of longer maturities more sensitive to current interest rates and inflation rates?

According to this website, the yields of TIPS of longer maturities are greater than that of TIPS of shorter maturities. It seems counterintuitive since yields of longer-maturity bonds, which are based ...
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Even at the break-even inflation rate, isn't the YTM of a TIPS greater than that of a normal treasury bond?

At a the break-even rate of inflation, the semi-annual interest payments from a TIPS and a normal government bond would be roughly equivalent. However, the principal amount originally invested in the ...
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What is the ideal way to update an old value to today's currency value?

For example, how much is $25 million in 1790 considered today? How do I update such value? It doesn't make sense to me to use, say, price indices. Shouldn't such update be done based on the ...
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Did real incomes drop significantly since the 1950s?

From what I heard, in 1950s America, you didn't have to go to college to support a large family and a stay-at-home wife. People could buy houses easily, drove giant cars and didn't worry about gas ...
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Using the Federal Reserve's Implicit Price Deflator to Convert to 2020 Dollars

I have a list of government expenditures from 2011 to 2018 as shown below: 2011 2012 2013... 2018 $30m $35m $42m $120m How can I use the Federal ...
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Can the U.S print infinite money? [duplicate]

I know that a country can't simply print money to pay debt, since it would only lower the value of the money, i. e. cause inflation. But what about the U.S? Since their new printed money is very ...
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What effect has the 30% increase in money supply from Feb-June of 2020 had?

I commented on a previous question that this is probably a better one. Old question Generally speaking, how has the increase in money supply resulting from the CARES act stimulus package affected the ...
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1answer
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Why may printing trillions of dollars not lead to inflation?

By definition, inflation should be affected by the increase of the money supply. During the pandemic, there have been numerous huge monetary policies executed, e.g., quantitative easing (QE), ...
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Does inflation equal change in M1 or M2?

According to monetarism, inflation can be predicted precisely by the change in money supply and GDP growth. Does "money supply" here refer to M1 or M2, i.e. does it include debts created by ...
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Why did Germany use hyperinflation to free itself from an external debt?

Im reading about how Germany used almost any solution To free itself from its WWI debt: hyperinflation, calculating payments on the basis of the economy's potential, rescheduling annuities and finally ...
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Why do all/majority of loan contracts charge nominal interest rate instead of fixed real interest rate?

As far as I understand, all/majority of loan contracts charge nominal interest rate, there are (almost?) no loan contracts that charge fixed real interest rate. Why is it so? Normally I would expect ...
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inflation rate vs interest rate on calculating present value of future money

i use the formula 100/(1+r)^T to calculate the present value of my future money while r is interest rate and T is year. However , for my country , interest rate (...
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4answers
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Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?

I recently read in a news article that a large amount of Libyan banknotes printed in Russia were seized in Malta following an order coming from the USA. Both Russia and the USA have geostrategic ...
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Deflate level and flow variables using PPI and CPI

What do statements like Flow variables (such as dividend growth and returns) are deflated using the CPI index. or Level variables are deflated using the Producer Price Index (PPI). mean? What are ...
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How buying bonds indirectly from the government prevents the central bank from financing government deficit?

From Krugman's macroeconomic textbook (highlighting is mine): "In an open-market operation the Federal Reserve buys or sells some of the exist- ing stock of U.S. Treasury bills, normally through ...
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Why are US equity prices and inflation inversely correlated?

Many comments on this r/stockmarket Reddit thread hypothesize an inverse correlation between USD value and US equity prices. Why would this be true in theory? It's not true in reality, right? Has the ...
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How is buying gold during a recession helpful for the economy?

As far as I can see it, it is a selfish and fearful reaction to bad market conditions that would result in greater deflationary pressure. It is true that it preserves the owner's wealth, but unless ...
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Why does an economic slowdown lead to deflation?

Usually economists say that in recession there is deflation, so increasing the money supply does not lead to a high level of inflation. According to the Quantity theory of money, the price level is ...
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Doesnt fractional reserve systems limit collapse of the money supply?

For example the black death occurred in basically a full reserve system. Because there was no m2 to destroy, the fall in output was inflationary. The same money existed chasing fewer goods. Doesnt the ...
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stylized facts about inflation and output: fat tails, excess volatility,

I can find papers about the stylized facts, which would be excess volatility, fat tails, persistence, etc., about asset prices, but not really about inflation and output, which presumely would show ...
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How is using a reserve fund different from printing money?

It is a common knowledge and has been explained here on SE that the source of value is production and consumption rather than money, and that accumulating money is thus pointless. Yet, "rainy day ...
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3answers
306 views

How does an increase in USD money supply affect inflation?

Say an average american household is bringing in $50,000 a year. Between ongoing quantitative easing and the drastic stimulus packages passed in February-May 2020, the USD Money Supply increased by 25%...
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236 views

Best way to measure inflation in real time?

I'm looking to measure inflation in real time preferably minute to minute. What would be different feasible approaches to this? I know that the CPI measures inflation quite accurately but this is only ...
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Is there a complete picture of Inflation?

Is there a book, or a broad study, that explains inflation thoroughly? I've read so many articles, and there are multiple school of thoughts that approach inflation from different point of views. ...
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Why not create money to assist the post-COVID-19 economy?

In an imaginary country, a horrible computer virus infected some banks. Within a week, it caused the wealth of a large portion of the population (say, 50%) to drop significantly. For some, it cut 80% ...
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Expected inflation in the real interest rate equation

Real interest rate = Nominal rate - Expected inflation In the above equation, in a quarterly data-set, which expected inflation shall be used? next quarter (q+1) or the same quarter of next year (q+4)...

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