宏观经济学 第五版 巴罗 题库课后答案教学PPT金圣才笔记下载

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Chapter 11:  Inflation, Money Growth, and Interest Rates

Chapter Summary:
         The chapter attempts to explain the relationship between inflation, money growth and interest rates using the tools of equilibrium business cycle theory and the theory of money supply and demand developed in previous chapters.  It begins by examining the international data on inflation rates and establishes the link between nominal monetary growth and inflation rates.  Then the chapter describes the impact of inflation on interest rates.  There are two distinctions which are important for understanding this particular section:  actual versus expected interest rates, and real versus nominal interest rates.  It is shown that intertemporal substitution effects depend on the expected real interest rate, something that cannot be directly observed.  3 different approaches to measuring expected values for inflation and interest rates are described, including the use of inflation indexed bonds.   
        In the previous chapter, changes in the amount of money had no effects on real variables- the analysis in this chapter demonstrates that changes in the growth rates of money also have no real effects.

        The difference between the growth rate of the money supply and money demand determines the rate of inflation.   Changes in the growth rate of money are shown to cause rapid changes in the price level; the mere anticipation of the change can cause the price level to “jump”.  The section shows how this “jump” is related to the theory of money demand.  

        The last section discusses how growth in the money supply can generate changes in the real revenue of government, unless money demand falls drastically as a consequence.   An extensive discussion of the issue using the German hyperinflation is discussed in the “by the numbers” example on page 285.

Chapter Outline:
I.        Cross Country Data on Inflation and Money Growth
II.        Inflation and Interest Rates
A.        Actual and Expected Inflation
B.        Real and Nominal Interest Rates
C.        The Real Interest Rate and Intertemporal Substitution
D.         Actual and Expected Real Interest Rates
i.        Measuring expected inflation
ii.        U.S expected inflation and inflation and interest since WW II
iii.        Indexed bonds, real interest rates, and expected inflation rates

III.        Inflation in the Equilibrium Business-Cycle Model
A.        Intertemporal-Substitution Effects
B.        Bonds and Capital
C.        Interest Rates and the Demands for Money
D.        Inflation and the Real Economy
E.        Money Growth, Inflation, and the Nominal Interest Rate
F.        A Trend in the Real Demand for Money
G.        A shift in the Money Growth Rate
H.        Government Revenue form Printing Money

Teaching Tips:
1.  This chapter covers a lot of ground, so it may require more class time than other chapters.  If pressed for time, you could skip the section on measurement of expected inflation.

2.  The “neutrality” of money is one of the key results of the equilibrium model.  Remind students of this fact when examining the international data on monetary growth rates and inflation rates.  If money is neutral, ask students why there should be such clear differences in monetary growth rates?  Apart from the ability to raise government revenue, are there any advantages to inflation?  (Hint:  how do people feel about getting raises every year?)

3.  One of the difficult concepts for students to use correctly is the idea of real money balances, but understanding how real money balances evolve is important to the results of the chapter.  The “By the numbers” example on page 285 provides concrete examples that will help students apply the theory properly.  

Answers to review questions, pg. 287

1.  a.  false.  A constant rate of inflation will be incorporated into a constant nominal rate.
     b.  true.  An growing rate of inflation will cause corresponding changes in i.

2.  The real interest rate is the nominal interest rate – inflation. Positive rates of inflation change the purchasing power of money over time, reducing the real value of interest.  Higher nominal rates are needed to compensate lenders for this loss in purchasing power.

3.  The actual rate can only be determined after the fact, when actual inflation rates can be measured.  Before the fact, inflation rates can only be predicted.

4.  The Livingston survey is survey of 50 economists concerning inflation forecasts.  The forecast uses “experts” as opposed to households.  The extent to which household expectations relate to those of the experts is not known.  Also, how do we determine whether the sample chosen is representative of the entire group?  On the other hand, to the extent that decision makers are looking at these forecasts when formulating their own expectations, the survey is an economical way and reliable source of information.

5.  The nominal rate cannot determine the opportunity cost of consuming goods today rather than in the future.  Only the real interest rate can do that, because it takes into account changes in the future price of goods.  The same argument applies to the labor supply decision, which is also based on the opportunity cost of current vs. future leisure.

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