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Money, Inflation, Interest

Money, Inflation, Interest. Econ 203/Brian Goff Department of Economics Western Kentucky University. Money, Money, Money. Money?. Keeping Money Safe. $25 in 1978 CPI = 67.5. $50 in 1989 CPI = 125. $100 in 2012 CPI = 225. “Payments” System and Wholesale Side of Money Markets.

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Money, Inflation, Interest

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  1. Money, Inflation, Interest Econ 203/Brian Goff Department of Economics Western Kentucky University

  2. Money, Money, Money

  3. Money?

  4. Keeping Money Safe

  5. $25 in 1978 CPI = 67.5 $50 in 1989 CPI = 125 $100 in 2012 CPI = 225

  6. “Payments” System andWholesale Side of Money Markets $100 Visa purchase Macy’s “Visa” pays Macy’s Consumer installments to “Visa” but flows MMMF Pays “Visa” to MMMF and holds CC Loan (slow inflow requires 2-day loan) GE Finance Loans MMMF for 2 days

  7. INFLATION • Inflation (on an annual basis) is the percent change in the average price level for the year Monthly Inflation = 100% x (CPI now – CPI last month)/ CPI last month Annualized = x 4

  8. U.S. Inflation Since 1960

  9. Effects of Inflation • Effects of inflation: • $10 item after 1 year of inflation @ • 2% = $10.20 • 10% = $11 • 100% = $20 • 1000% = $110 • 10,000% = $1100 • 1 million % = • Formula is P*(1 + decimal inflation rate)

  10. INFLATION TOP 10 (cia world fact book, 2008) Uzbekistan 16.00 2007 est. Afghanistan 16.30 2005 est. Iran 17.00 2007 est. Sao Tome 17.00 2007 est. Congo 18.20 2006 est. Guinea 20.00 2007 est. Venezuela 20.70 2007 est. Burma 39.50 2007 est. Zimbabwe 26,470 2007 est.

  11. Factors influencing inflation: Supply and Demand for Money • Inflation = % Change Money Supply + % Change in Velocity of Money - % Change in real income

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