who/what causes inflation Flashcards
which of the QE was inflationary
QE4
inflation impacts prices how
prices go up
two theories of inflation
-quantiative theory of money (QTOM)
-fiscal theory of price level
quantiative theory of money
1:1 for growth of money and supply
-printed money = inflation because of demand going up
fiscal theory of price level
fiscal expansions causes inflation
are QTOM and FTPL mutually exlcusive
no
what does milton friedman say about inflation
not suitable for real time decision making
is supplementary interest normal
no (ie covid)
total interest is determine by
debt
according to QTOM does fed in fact control the money supply
no b/c banks can make money
-bc fed creates and causes inflation
QTOM velocity is shown how
how often currency changes hands (total economic activity)
is QTOM long or short run
fails in short run but not long run (factors of production lag)
is money velocity constant over course of time
yes
growth rate of money supply correlates with
interest rate (so by QTOM fed is responsible)
FTPL assertion
inflation is proportional to rate of growth of national debt
since congress chooses the growth rate of national debt it effectively causes what
inflation b/c congress chooses groiwth rate of debt they effectively puase/control inflation
does congress in fact control national debt
yes/no, some parts of budget are set or discretionary (can choose)
will gov at some point settle debt on balance sheet
yes
according to FTPL as a countrys debt rises, two extreme evenys might occur which are
1)ppl trust govnt will generate future surpluses to repay inc level of debt, so they are happy to hold it (price level is unchanged)
2)ppl do not trust govnt will generate nough eusplrus to repay new inc level of debt so they trade it for goods + services (price level rises proportionally)
FTPL asserts what
1) govnt debt is money and 2) its value dervices from the present value of future tax revenues
FTPL problem
think gov wont be able to pay so you ant money back now, spend it, price levels rise (inflation)
why might people still want to get rid of their money if not for fear of default
because they fear that the gov will inflate the debt away.
issues with QTOM
the fed does not have control of the supply of money used in real economy (currency in circulation + demand deposiys)
issues with FTPL
-govnt debt is not money
-so long as fed is independent, congress cnanot just inflate away its debt
how to ATOM and FTPL not mutually exlcusive
both think that fed congress and treasury inpact money supply
two types of money that can be inflationary
currency and deposits
why were QE1-3 not inflaitonary
b/c they were only dealing with banking money
-money to banks to pay off their debt
why was QE4 inflationary
b/c stimulus checks that put money into real world
what type of money can fed make
banking money
when teh govnt spends what is created
new deposits
fiscal deficits lead to
a net creation of deposits
modern monetary theory
arent going to be actually able to pay back all debt (nor do we want to) so we will infinitely print money
the gov can and should spend uninhibitedly b/c… (by modern money theory)
debt and factors
modern monetary theory: debt
can be paid for via monetary expansion -> no default risk
modern monetary theory: factors
are slam or demand for money is unlimited -> no inflation risk
