Money Growth and Inflation

Money Growth and Inflation
© 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Inflation Inflation Deflation Hyperinflation
Increase in the overall level of prices Typical in 20th century America Deflation Decrease in the overall level of prices Typical in 19th century America Hyperinflation Extraordinarily high rate of inflation Too much inflation © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Classical Theory of Inflation
Classical theory of money Based upon quantity theory of money that money supply has a direct, proportional relationship with the price level Explain the inflation rate © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Level of Prices; Value of Money
Inflation Economy-wide phenomenon that concerns first and foremost, the value of economy’s medium of exchange A rise in the price level that lower value of money so that each dollar buys a smaller quantity of goods and services © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Money demand Reflects how much wealth people want to hold in liquid form, in their wallets Depends on how much they rely on credit cards, the availability of ATM machines, interest rate a person could earn, and average level of prices in economy (higher prices requires more $’s) Demand curve for money is downward sloping indicating wen the value of money is low (prices are high), people demand a higher quantity of it to buy goods and services. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Money supply Is determined by the Fed and the banking system (Ch.29) Supply curve for money is vertical because the Fed has fixed the quantity of money available. In the long run Overall level of prices adjusts to the level at which the demand for money equals the supply © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 1 How the Supply and Demand for Money Determine the Equilibrium Price Level (high) (low) Value of Money, 1/P 1 Price Level, P 1.33 2 4 Quantity fixed by the Fed Money Supply Money Demand A Equilibrium value of money Equilibrium price level Quantity of Money The horizontal axis shows the quantity of money. The left vertical axis shows the value of money, and the right vertical axis shows the price level. The supply curve for money is vertical because the quantity of money supplied is fixed by the Fed. The demand curve for money is downward sloping because people want to hold a larger quantity of money when each dollar buys less. At the equilibrium, point A, the value of money (on the left axis) and the price level (on the right axis) have adjusted to bring the quantity of money supplied and the quantity of money demanded into balance. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Effects of a Monetary Injection
Economy in equilibrium The Fed doubles the supply of money by printing bills and dropping them on market or the Fed makes and open-market purchase of bonds by purchasing bonds in the open market injecting money into economy New equilibrium because supply curve shifts right. Implications in the economy: Value of money decreases and price level increases © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 2 An Increase in the Money Supply (high) (low) Value of
Money, 1/P 1 Price Level, P 1.33 2 4 M1 MS1 M2 MS2 Money Demand 1. An increase in the money supply . . . A decreases the value of money . . . and increases the price level. B Quantity of Money When the Fed increases the supply of money, the money supply curve shifts from MS1 to MS2. The value of money (on the left axis) and the price level (on the right axis) adjust to bring supply and demand back into balance. The equilibrium moves from point A to point B. Thus, when an increase in the money supply makes dollars more plentiful, the price level increases, making each dollar less valuable. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Quantity theory of money The quantity of money available in the economy determines (the value of money) the price level because when there are more $’s in the economy, there is a greater demand for goods and services. The increase in the price level increases the quantity demanded of money because people are using more $’s for each transaction. Supply and demand of money reach a new equilibrium Growth rate in quantity of money available determines the inflation rate © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Adjustment process from a monetary injection: Excess supply of money Increase in demand of goods and services Price of goods and services increases Increase in price level Increase in quantity of money demanded New equilibrium where supply shifts right and each $ becomes less valuable. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Classical Dichotomy David Hume 18th Century
Classical Dichotomy: To measure the effects of monetary policy, Hume and his contemporaries suggests dividing into two groups: 1. Nominal variables Variables measured in monetary units such as dollar prices 2. Real variables Variables measured in physical units such as cars or bushels of wheat grown © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Classical Dichotomy According to classical analysis:
Nominal variables are influenced by developments in the economy’s monetary system. Real variables are not changed by changes in the money supply. If the money supply doubles, prices double, wages double, and all other $ values double Real variables such as production, employment, real wages, and real interest rates are unchanged. The irrelevance of monetary changes for real variables is called monetary neutrality. Not completely realistic in short-run. Most economists believe that monetary changes effect real variables with in first year or two. Correct in the long run © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Classical Dichotomy Monetary Neutrality
Not completely realistic in short-run. Most economists believe that monetary changes do have an effect real variables with in first year or two. Hume himself questioned non-neutrality Correct in the long run Classical analysis believes that while monetary policy does have an impact on real variables in the short run (1 or 2 years), over a decade monetary changes have significant impact on nominal variables (such as price level) but only negligible effects on real variables (such as real GDP). When studying long run changes in the economy, monetary neutrality offers a good and valid description of how the world works. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Velocity & the Quantity Equation
Velocity of money (V) How many times a year a particular Dollar Bill is used pay for a newly produced good or service Refers the speed at which the typical dollar bill travels around the economy from wallet to wallet V = (P × Y) / M P = price level (GDP deflator) Y = real GDP M = quantity of money © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Velocity of money (V) Example: a simple economy produces only pizza pizzas are produced in a year, a pizza sells for $10, and there is $50 in the economy. V = ($10 x $100)/$50 = 20 In this economy, people spend $1000 on pizza. With only $50 in the economy, each dollar bill must change hands 20 times. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Quantity equation: M × V = P × Y Quantity of money (M) Velocity of money (V) Dollar value (nominal value) of the economy’s output of goods and services (P × Y ) Relates the quantity of money (M) to the nominal value of output (P x Y) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Quantity equation: M × V = P × Y Quantity of money (M) Velocity of money (V) Dollar value (nominal value) of the economy’s output of goods and services (P × Y ) Equation shows that any increase in quantity of money must be reflected in one of the other three variables: Price level must rise Quantity of output must rise Velocity of money must fall © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 3 Nominal GDP, the Quantity of Money, and the Velocity of Money
This figure shows the nominal value of output as measured by nominal GDP, the quantity of money as measured by M2, and the velocity of money as measured by their ratio. For comparability, all three series have been scaled to equal 100 in Notice that nominal GDP and the quantity of money have grown dramatically over this period, while velocity has been relatively stable. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Quantity Theory of Money
We now have all of the elements necessary to explain the equilibrium price level and inflation rate: Velocity of money is relatively stable over time Because velocity is stable, when the Central Bank changes in quantity of money (M), it causes proportionate changes in nominal value of output (P × Y) The economy’s output of goods & services (Y) is primarily determined by factor supplies (labor, physical capital, human capital, and natural resources) and available production technology. In particular, because money is neutral, money does not affect output. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Quantity Theory of Money
With output (Y) determined by factor supplies and technology, when the central bank alters the money supply (M) and induces proportional changes in the nominal value of output (P x Y), these changes are reflected in changes in the price level. (P) Therefore when the central bank increases the money supply rapidly the result is a high rate of inflation © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Money and prices during four hyperinflations
Inflation that exceeds 50% per month Price level increases more than a hundredfold over the course of a year Data on hyperinflation shows a clear link between quantity of money and the price level © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Money and prices during four hyperinflations
Four classic hyperinflation, 1920s Austria, Hungary, Germany, and Poland Slope of the money line represents rate at which the quantity of money was growing Slope of the price line represents the inflation rate The steeper the lines, the higher the rates of money growth or inflation Prices rise when the government prints too much money © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 4 Money and Prices during Four Hyperinflations
This figure shows the quantity of money and the price level during four hyperinflations. (Note that these variables are graphed on logarithmic scales. This means that equal vertical distances on the graph represent equal percentage changes in the variable.) In each case, the quantity of money and the price level move closely together. The strong association between these two variables is consistent with the quantity theory of money, which states that growth in the money supply is the primary cause of inflation. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Inflation Tax Government can fund spending by levying taxes, borrowing or by printing money. When the government chooses to print money, prices rise (hyperinflation) The inflation tax is a tax on everyone who holds money because when the government prints money the price level rises and the dollars in your wallet are less valuable In the U.S. since 1970, the inflation tax has been less than 3% because the Fed has not paid for government spending by printing more $’s © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Fisher Effect Principle of monetary neutrality
An increase in the rate of money growth raises the rate of inflation but does not affect any real variable An important application of this principle concerns the effect of money on interest rates. Real interest rate = Nominal interest rate – Inflation rate If nominal interest = 7% and inflation = 3%, then real value of deposits grow by 4% per year. Nominal interest rate = Real interest rate + Inflation rate © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Fisher Effect Consider how the growth of the money supply affects interest rates. In the long run over which money is neutral, a change in money growth should not affect the real interest rate. Remember, the real interest rate is a real variable. If Real interest rate = Nominal interest rate - Inflation then: For the real interest rate to be unaffected, the nominal interest rate must adjust one-for-one to changes in inflation This adjustment of the nominal interest rate to the inflation rate is known as the Fisher Effect, after Irving Fisher ( ) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Fisher Effect Fisher Effect
Is a long-term perspective. If someone takes a loan out at a nominal interest rate and inflation goes up causing nominal interest rates to rise, the loan is still paid at the agreed upon interest rate. If inflation remains high, people will eventually come to expect it, and loan agreements will reflect the expectation. The Fisher Effect states that the nominal interest rate will come to adjust to expected inflation. Expected inflation moves with actual inflation in the long run, but not necessarily in the short run The Fisher Effect goes a long way in explaining change sin nominal interest over time. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Figure 5 The Nominal Interest Rate and the Inflation Rate
This figure uses annual data since 1960 to show the nominal interest rate on three-month Treasury bills and the inflation rate as measured by the consumer price index. The close association between these two variables is evidence for the Fisher effect: When the inflation rate rises, so does the nominal interest rate. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Costs of Inflation Inflation fallacy mostly created by U.S. media who is fixated on inflation The typical U.S. citizen thinks “Inflation robs people of the purchasing power of his hard-earned dollars” When prices rise buyers pay more and sellers get more. Since most people earn their incomes by selling their services such as their labor, inflation in incomes goes hand in hand inflation in prices. The answer to this fallacy is Inflation does not in itself reduce people’s real purchasing power © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Costs of Inflation Menu costs
As discussed earlier, inflation is like a tax. The tax is not a cost to society but a transfer of resources from households to society. As we have studied earlier, taxes cause deadweight losses as a tax distorts incentives to alter people’s behavior to avoid paying the tax The inflation tax causes deadweight losses because people to waste scarce resources trying to avoid it. People can avoid this tax by holding less money and keeping more money in bank earning interest. This is called the shoeleather cost, because people wear their shoes out going to the bank more often. The true cost is the time and inconvenience of going to the bank more often. Resources wasted when inflation encourages people to reduce their money holdings Can be substantial Menu costs Costs of changing prices Inflation – increases menu costs that firms must bear © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Costs of Inflation Menu costs Shoeleather Cost
The result is that resources wasted when inflation encourages people to reduce their money holdings. The resulting loss of resources can be substantial Menu costs Firms normally keep prices for weeks or months In periods of rapid inflation, there are costs of changing prices more frequently. Inflation increases menu costs that firms must bear © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Relative-Price Variability
If a firm sets prices once per year and leaves them: If inflation is stable, relative prices are stable If inflation is increasing, relative prices are falling High inflation causes relative prices to vary more than they normally would. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Relative-Price Variability
Market economies rely on relative prices allocate scarce resources Consumers decide what to buy by comparing quality and prices of various goods and services Through these decisions, consumers determine how the allocation of scarce factors of production among industries and firms When Inflation distorts relative prices, consumer decisions are distorted and markets are less able to allocate resources to their best use © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Inflation-Induced Tax Distortions
Taxes distort incentives and cause people to alter behavior and lead to a less efficient allocation of economy’s resources Many lawmakers tend to not account for inflation when writing tax laws Inflation tends to raise the tax burden on income earned from savings © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

An example is tax treatment of capital gains which are the profits made by selling an asset for more than its purchase price Suppose a stock is purchased for $10 and sold 2 years later for $50, a taxable gain of $40. Suppose in the same 2 year period prices double so that the original $10 investment is worth $20 The tax code does not recognize that the original stock is now worth $20 and the capital gain is actually $30 The result is that inflation discourages saving because it exaggerates the size of capital gains and inadvertently increases the tax burden on this type of investment. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Tax treatment of interest income Nominal interest earned on savings is treated as income even though part of the nominal interest rate compensates for inflation The result is that because of inflation-induced tax changes, higher inflation tends to discourage people from saving One solution is to index the tax code with PPI or CPI to tax only the real gains The downside is that this would further complicate the tax code. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Table 1 How Inflation Raises the Tax Burden on Saving
In the presence of zero inflation, a 25 percent tax on interest income reduces the real interest rate from 4 percent to 3 percent. In the presence of 8 percent inflation, the same tax reduces the real interest rate from 4 percent to 1 percent. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Confusion and Inconvenience
Money is the yardstick (measuring instrument) with which we measure economic transactions The Fed’s job is like the Bureau of Standards: to ensure the reliability of money. Just as a yardstick is used to measure distance last year, this year, and next year; a $ should be used to measure economic transactions. When the Fed increases money supply and creates inflation, it erodes the real value of the unit of account It is difficult to judge the cost of inconvenience and confusion © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Confusion and Inconvenience
When the Fed increases money supply and creates inflation, it erodes the real value of the unit of account It is difficult to judge the cost of inconvenience and confusion The tax code incorrectly measures real incomes in the presence of inflation Accountants incorrectly measure firms earnings when prices rise over time Because inflation causes $’s at different times to have different real values, computing a firms profit is more complicated in an economy with inflation. This makes investors less able to sort through successful and unsuccessful firms to invest in. This impedes financial markets in their role of allocating the economy’s savings to alternative types of investment. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Arbitrary Redistributions of Wealth
Redistributes wealth among the population in a way that nothing to do with merit or need. Redistribution occurs because loans are specified in terms of the unit of account - $’s Example: A student takes out $50 k in loans due 10 years after graduation. If there is high inflation above nominal interest rate, that would be good for the borrower as they would pay it back with cheaper $’s If there is low or no inflation below nominal interest rate, that would be good for lender as the $’s that they are getting back are worth more than the $’s that they lent the borrower © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Arbitrary Redistributions of Wealth
Unexpected inflation Redistribution of wealth occurs between debtors and creditors depending on inflation rate The goal is to set the nominal interest rate at the inflation rate according to the Fisher effect. When unexpected inflation occurs, redistribution of wealth occurs between debtors and creditors. Inflation is especially volatile and uncertain when average inflation is high; hyperinflationary situations. Inflation tends to be stable when average inflation is low There are no known examples of economies with high, stable inflation © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Deflation May Be Worse Small and predictable amount of deflation may be desirable The Friedman Rule: moderate deflation will Lower the nominal interest rate (Fisher effect) which would reduce the cost of holding money Shoeleather costs of holding money minimized by a nominal interest rate close to zero which would require deflation equal to the real interest rate © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Deflation May Be Worse Costs of deflation
Induces menu costs (the cost of changing prices) and relative-price variability If not steady and predictable there is a redistribution of wealth toward creditors and away from debtors. Because debtors are often poorer, these redistributions are particularly pernicious. Tend to arise because of broader macroeconomic difficulties. Falling prices result when some event, such as monetary contraction, reduces the overall demand for goods and services in the economy. This fall in aggregate demand can lead to falling incomes and rising unemployment. As a result, deflation is often a symptom of deeper economic problems: © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The wizard of oz and the free-silver debate
Movie The Wizard of Oz Based on a children’s book – 1900 Allegory about U.S. monetary policy in the late 19th century , price level fell by 23% Major redistribution of wealth Farmers in west – debtors Bankers in east – creditors Real value of debts increased © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Populist politician solution to the farmers’ problem Free coinage of silver when U.S. was operating under the gold standard Quantity of gold determined the money supply and thereby the price level © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Free-silver advocates wanted silver and gold to be used as money. If adopted this proposal would Increase money supply Push up the price level Reduced real burden of the farmers’ debts © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

L. Frank Baum Author of the book The Wonderful Wizard of Oz was a Midwestern journalist Characters Protagonists in the major political battle of his time © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Characters Dorothy: Traditional American values Toto: Prohibitionist party, also called the Teetotalers Scarecrow: Farmers Tin Woodsman: Industrial workers Cowardly Lion: William Jennings Bryan (Democratic nominee for President) Munchkins: Citizens of the East Wicked Witch of the East: Grover Cleveland (Pro-business democrat who opposed silver standard) © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Characters Wicked Witch of the West: William McKinley (Democratic Presidential candidate who beat Bryan) Wizard: Marcus Alonzo Hanna, chairman of the Republican Party Oz: Abbreviation for ounce of gold Yellow Brick Road: Gold standard Dorothy finds her way home Not by just following the yellow brick road Magical power of her silver slippers © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Populists Lost the debate over the free coinage of silver but they eventually get the monetary expansion and inflation that they wanted Increased supply of gold 1898 new discoveries near Klondike River in the Canadian Yukon Arrived from mines of South Africa As a result the money supply & price level started to rise Within 15 years, prices were back to 1880 levels and farmers were better able to pay their debts. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Money Growth and Inflation

Similar presentations

Presentation on theme: "Money Growth and Inflation"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Money Growth and Inflation

Similar presentations

Presentation on theme: "Money Growth and Inflation"— Presentation transcript:

Similar presentations

About project

Feedback