1. Copyright © 2006 Thomson Learning 30 Money Growth and Inflation

2. Figure 1 Money Supply, Money Demand, and the Equilibrium Price Level Copyright © 2004 South-Western Quantity of Money Value of Money, 1/ P Price Level, P Quantity fixed by the Fed Money supply 0 1 (Low) (High) (Low) 1 / 2 1 / 4 3 / 4 1 1.33 2 4 Equilibrium value of money Equilibrium price level Money demand A

3. Figure 2 The Effects of Monetary Injection Copyright © 2004 South-Western Quantity of Money Value of Money, 1/ P Price Level, P Money demand 0 1 (Low) (High) (Low) 1 / 2 1 / 4 3 / 4 1 1.33 2 4 M1M1 MS 1 M2M2 MS 2 2.... decreases the value of money... 3.... and increases the price level. 1. An increase in the money supply... A B

4. Figure 3 Money and Prices During Four Hyperinflations Copyright © 2004 South-Western (a) Austria(b) Hungary Money supply Price level Index (Jan. 1921 = 100) Index (July 1921 = 100) Price level 100,000 10,000 1,000 100 19251924192319221921 Money supply 100,000 10,000 1,000 100 19251924192319221921

5. Figure 3 Money and Prices During Four Hyperinflations Copyright © 2004 South-Western (c) Germany 1 Index (Jan. 1921 = 100) (d) Poland 100,000,000,000,000 1,000,000 10,000,000,000 1,000,000,000,000 100,000,000 10,000 100 Money supply Price level 19251924192319221921 Price level Money supply Index (Jan. 1921 = 100) 100 10,000,000 100,000 1,000,000 10,000 1,000 19251924192319221921

6. Figure 4 The UK Nominal Interest Rate and the Inflation Rate Copyright © 2004 South-Western

7. Table 1 How Inflation Raises the Tax Burden on Saving Copyright©2004 South-Western