The Economics of the Socially Engaged Enterprise: What Separates the Leaders from the Laggards
Economics for Leaders Money & Inflation Economics for Leaders Butterfingers.
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Transcript of Economics for Leaders Money & Inflation Economics for Leaders Butterfingers.
Economics for Leaders
Economics for Leaders
Money & Inflation
Economics for Leaders
Butterfingers
Economics for Leaders
Inflation
A general, sustained increase in the price level
OrA decline in purchasing power
Economics for Leaders
How is Inflation measured?
Market basket of goods and services compared over time
Consumer Price IndexConsumer Price Index
Economics for Leaders
Same Products – Higher Prices
Economics for Leaders
Inflation
What’s the problem?
Price Stability!
Certainty vs. Uncertainty
Economics for Leaders
Which would you rather have?
Economics for Leaders
Hyperinflation in Zimbabwe
A Zimbabwean friend who runs a business recently told me, “If you don’t get a bill collected in 48 hours, it isn’t worth collecting, because it is worthless. Whenever we get money, we must immediately spend it, just go and buy what we can. Our pension was destroyed ages ago. None of us have any savings left.” http://davidcoltart.com/archive/2008/376 “Dying Silently in Zimbabwe,” by Michael Gerson, Washington Post, Feb 20, 2008
Economics for Leaders
HARARE, April 25,2006 — How bad is inflation in Zimbabwe? Well, consider this: at a supermarket near the center of this tatterdemalion capital, toilet paper costs $417.No, not per roll. Four hundred seventeen Zimbabwean dollars is the value of a single two-ply sheet. A roll costs $145,750 — in American currency, about 69 cents.The price of toilet paper, like everything else here, soars almost daily, spawning jokes about an impending better use for Zimbabwe's $500 bill, now the smallest in circulation.
Economics for Leaders
Lunch for 8 people costs a diner 6 million Zimbabwean dollars (about $18 U.S.)
Economics for Leaders
What Causes Inflation ?
All periods of significant sustained inflation have been accompanied by
increases in the money supply
Economics for Leaders
Money Supply (M1)
Coin +Currency 23%
Checkable Deposits 77%
Economics for Leaders
Creation of Money
Economics for Leaders
Federal Reserve System (FED)
12 DistrictsMember banksDistrict chairpersons and boardsFederal Reserve Chairman and boardOpen Market committee
Economics for Leaders
Federal Reserve System
Economics for Leaders
Manage the Money Supply
to Avoid Inflation: The
Job of the Federal Reserve System
“All periods of significant sustained inflation have been
accompanied by increases in the money supply.”
Economics for Leaders
Tools of the FED
Reserve requirementDiscount rate
Open market operations
Economics for Leaders
Money Supply and Interest Rates
Demanders + Suppliers = Price
Economics for Leaders
Interest Rate=Price of Money
Prices (and interest rates) are set by the market—not by the FED.
Producers influence price through the quantity of goods.
The FED influences interest rates (the price of money) through the quantity of money.
Economics for Leaders
Who is watching over the Economy?
What will the future hold?
Economics for Leaders
Who is watching over the Economy?
What will the future hold?