1. Module Types of Inflation, Disinflation, and Deflation KRUGMAN'S MACROECONOMICS for AP* 33 Margaret Ray and David Anderson

2. What you will learn in this Module : The classical model of the price level Why efforts to collect an inflation tax by printing money can lead to high rates of inflation and even hyperinflation The types of inflation: cost-push and demand-pull

3. The Classical Model of Money and Prices The Classical Model of Money and Prices %∆ M = %∆ PL Classical Model of the Price Level (E to E’’)...Good assumption given high inflation Classical Model ignores short-run changes ( E to E’)... Poor assumption given low inflation.

4. The Inflation Tax The Inflation Tax Independent central banks issue fiat money Monetizing the debt Seignorage Inflation Tax

5. The Logic of Hyperinflation The Logic of Hyperinflation Impact of inflation tax on people’s decision to hold money Why print large sums of money? Taxi analogy Substituting commodities for currency

6. Moderate Inflation and Disinflation Cost-push inflation Demand-pull inflation Politically motivated inflation Disinflation? Former Federal Reserve Chairman, Alan Greenspan

7. The Output Gap and the Unemployment Rate Output Gap Actual Output = Potential Output.: Actual Unemployment = Natural Rate of Unemployment Actual Output > Potential Output.: Actual Unemployment < Natural Rate of Unemployment Actual Output Natural Rate of Unemployment