MDU Macroeconomics

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Stephen Kinsella

Inflation and Growth

Business Economy & Finance

MDU Macroeconomics Lecture 5 Inflation Stephen Kinsella

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What Is Inflation|Price Inflation Versus Printing Money Inflation According to Wikipedia http://en.wikipedia.org/wiki/Inflation, "inflation" has this definition: "In economics, inflation is a persistent increase in the general price level of goods and services in an economy over a period of time." We will call this definition, "price inflation." It is, to be sure, what the vast majority (the bottom 99.9999% of us) feel the greatest economic impact from and is generally what most people mean when they use the term, "inflation," as it results in us spending more and more of our money on less and less goods and services. Price inflation robs us of the wealth that we create and results in a lower quality of life for everybody because it diminishes our ability to freely participate in commerce with each other. Then on same Wikipedia page, the following is also said about inflation: "Economists generally believe that high rates of inflation and hyperinflation are caused by an excessive growth of the money supply." “Excessive growth of the money supply,” is generally what economists are referring to when they use the term inflation. Since it is all too common to apply these two concepts interchangeably, and confusingly, to the term, "inflation," we will make a distinction between the two concepts here. As noted earlier, an increase in prices will be referred to here as, "price inflation." "Excessive growth of the money supply," will be referred to here as, "circulatory inflation." The mantra that many economists, particularly the so-called Austrian School, have been repeating is that price inflation is the direct result of circulatory inflation, or by the government "printing too much money." WROOONG! It sounds good on paper, right? In theory, circulatory inflation *could* cause price inflation. In some parallel universe. If circulatory inflation existed there. First of all, the government does NOT print money. With the exception of minted coins, all of our currency is issued by privately held banks at INTEREST. Since all of these privately published representations (which we call currency) have to be paid back to private banks at interest which they never issue in the first place, it is mathematically impossible for circulatory inflation to exist. Second of all, are we to believe that manufacturers and other business owners possess some magical telepathic power to detect when the the supply of currency has been expanded and then automatically raise their prices to compensate? Is that why prices have been increasing as much as 10% annually? WROONG! Since we have been obligated to pay back these representations of entitlement with interest which is never issued, the inevitable result is, in fact, circulatory DEFLATION. In other words, paying interest on every single unit of currency in circulation causes a DECREASE in the volume of currency.

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In today’s global economy, fears of inflation are front and center for many. This fear is driven by massive government stimulus in response to the COVID-19 pandemic. However, many market participants nowadays haven’t experienced truly unhealthy levels of inflation and therefore aren’t prepared to protect themselves against it. In order to understand where this fear originates from and how one can better protect themselves from unhealthy levels of inflation, it is paramount that market participants and everyday individuals understand the ins and outs of inflation. In this report, we break down inflation, elaborate on its causes and effects, discuss how central banks manage it, explain what it means for society, and lend insight into how anyone can protect themselves against it.

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We present a model of matching based on two character measures. There are two classes of individual. Each individual observes a sequence of potential partners from the opposite class. One measure describes the "attractiveness" of an individual. Preferences are common according to this measure: i.e. each individual prefers highly attractive partners and all individuals of a given class agree as to how attractive individuals of the opposite class are. Preferences are homotypic with respect to the second measure, referred to as "character" i.e. all individuals prefer partners of a similar character. Such a problem may be interpreted as e.g. a job search problem in which the classes are employer and employee, or a mate choice problem in which the classes are male and female. It is assumed that attractiveness is easy to measure and observable with certainty. However, in order to observe the character of an individual, an interview (or courtship) is required. Hence, on observing the attractiveness of a prospective partner an individual must decide whether he/she wishes to proceed to the interview stage. Interviews only occur by mutual consent. A pair can only be formed after an interview. During the interview phase the prospective pair observe each other's character, and then decide whether they wish to form a pair. It is assumed that mutual acceptance is required for pair formation to occur. An individual stops searching on finding a partner. This paper presents a general model of such a matching process. A particular case is considered in which character "forms a ring" and has a uniform distribution. A set of criteria based on the concept of a subgame perfect Nash equilibrium is used to define the solution of this particular game. It is shown that such a solution is unique. The general form of the solution is derived and a procedure for finding the solution of such a game is given.

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