ECON 102 Lecture 21: Econ 102 Lecture 21 Notes
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ECON 102 Full Course Notes
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Document Summary
Money in unusual circumstances: classical macro and price flexibility, the inflation tax, the proximate causes of hyperinflation, the problems of hyperinflation, the problems of deflation. Last class, we studied the effects of monetary policy in the usual times. Back in chapter 8, we studied the costs of inflation in the usual times. Things like menu costs, shoeleather costs, etc. Argued that mostly, what inflation does is cause reallocations through unexpected changes. Today, we study the unusual times when changes in the price level can be very costly. The classical model of money assumes no stickiness . When the money supply rises, ad shifts outwards. Because of the lack of stickiness, the sras curve can immediately respond, raising wages and putting the economy back into lr equilibrium. The economy jumps from one lr equilibrium to another. No adjustment, no business cycle (as generated by market imperfections like sticky prices) Classicals wouldn"t admit the existence of an sras (which assumes sticky wages)
