princ-ch30-presentation货币增长和通胀.ppt

* This graph is not in the textbook, but it helps expose the inflation fallacy. Note: If you change the scale of the CPI axis, you can make it look like the CPI is rising faster or slower than the average worker’s nominal wage. However, you can normalize both series to equal 100 in 1965 and plot them on the same vertical axis, and the result would be remarkably similar to what you see here: the average wage divided by the CPI is virtually the same today as 40 years ago (despite a few ups and downs in the interim, which of course should not be surprising, as the determinants of the real wage - labor supply and the marginal product of labor – are not likely to be constant over such a long time period). I decided to go with this graph instead of a graph of the two variables equal to 100 in 1965 because the units of this graph are more natural, and because it gives students practice interpreting graphs with variables measured on different scales. The nominal wage is average hourly earnings, total for private sector, seasonally adjusted, from the Bureau of Labor Statistics, U.S. Department of Labor. The CPI in this graph is seasonally adjusted, also from the BLS. Most principles-level students have difficulty the first time they are asked to calculate the after-tax real interest rate because the calculation involves several intermediate steps. The intermediate steps are, at first, not obvious to most students. This exercise walks students through these steps. The exercise leads students to see for themselves that inflation reduces the after-tax real interest rate. Suggestion: Display this slide, and give students 3-4 minutes to work the problem on their own. Suggestion: If you can spare the class time, ask students for the answers before you display them. By lowering the after-tax interest rate, inflation reduces the incentive to save. Recall that saving is critically important for future productivity and living standards. * For many students, thi