I'd like to add a point (or even a correction): not always all prices rise up altogether; more specifically, not always salary rises in the same rate as products. This has been happening here in Brazil: while most salaries have been increased in accordance with a formal inflation index, many products consumed by all people, such as meat and apartments/houses, have increased far more than the average computed by the index. And the there is the variance related to each economic level of the society: poor people don't have a car here, so the inflation related to oil is irrelevant for them compared to bread. In that case, a smaller inflation in oil but bigger inflation in bread may lead to the average value computed by the index and used to raise that poor guy's minimum wage, but he actually suffered in the process. At the end, the common Brazilian has actually lost market power since the introduction of the Real.
Thank you so much for suck great explanation to inflation! Who would've known 4 yrs later, in 2022, covid-19 would send a big inflation shock wave world wide!?
So all we have to do is trust the BLS calculations; the govs calculations without any acknowledgment of hedonic adjustment? You realize the gov has every incentive to keep the headline inflation number low right? Dollar confidence, social security payments, and overall economic stability to name a few.
If money supply is constant, but yet rise in inflation say because of the depreciation or devaluation of the exchange rate, in that case prices will rise creating a higher demand for money. Probably the output has to come in picture because higher output will generate higher amount of money so it money may not be the only factor responsible for inflation
Didn't we just established in the last video that inflation is about the money supply ? Thus shouldnt we be able to "know" the rate of inflation by "knowing" the increase in money supply ? we don't know how the "inflation" might affecte each price independently because of the noise but shouln't we be able to know the genral rate of inflation by knowing the rate of increase of the money supply ?
Dear professor the Video is Magnificent and really beneficial, but I think that you miss the definition when you said that the inflation is making a redistribution in wealth, i think in my humble opinion that is not totally correct, the inflation concentrate wealth to two parties the Government and the one who are in debt if he / she used that debt in buying an asset . and thanks again for your great effort wish to be in your team, good luck and thanks for sharing Knowledge May God Bless you.
In order to do an actual comparison between the rise in the prices of general consumer goods and services on average to that of wages/income, you'd do it with actual income data, because that is how much people are actually earning. Only a tiny percentage of working Americans earn the minimum wage at any given time, and according to the Bureau of Labor Statistics, most people who get a MW job are earning more than the MW within a year.
I don't think it's a real illusion. Many things are bought on credit and people budget based on how much they have to pay monthly (e.g., car payment, mortgage payment, etc). Inflation squeezes nonfixed expenses only, but a pay cut not only squeezes nonfixed expenses but also makes your budget for these things not go as far. Hence you have the "Angry Professor Syndrome" talked about in another video.
In the equation GDP = C+I+G+(X-M), does investment 'I' includes inflow of Foriegn direct investment (FDI) ? Does investment 'I' includes spending by domestic businesses only? Does investment 'I' includes spending by foreign businesses in the form of Foreign direct investment (FDI) ?
Marginal Revolution University hi,I'm from India , recently our currency was demonetized which led to utter chaos, can u ppl please make a video on that one??
When was the last time wages adjusted for inflation by doubling? Go ahead and tell people working a minimum wage job demanding "Fight for $15" that inflation is consistently only 2.5%. If you are so sure of your models how about a forecast from all the information we have from 2000-2016? Why is inflation only 2.5% with a National Debt of 22 Trillions dollars? No velocity? The Federal Reserve buying assists?
We never had a one hundred percent inflation per year in the US, so the question of doubling wages to adjust for it did not arise. The fight for doubling the minimum wage was never mainly about inflation. This video is not trying to forecast inflation at all. It merely explains the concept of money illusion. The American government does resort to some quantitative easing to reduce the burden of debt, but it would be an inflationary disaster to pay off the whole debt by newly printed money. I do not see how the question of velocity comes up in this context. Inflation has been small in spite of quantitative easing because the amount of money in circulation did not increase proportionally, since commercial banks did not further lend out the newly printed money.
This channel is addictive. I come here to study for my Econ class, but sometimes I just like to watch for my own entertainment. Such good stuff!
Yea! Same here mate
It's worth mentioning a big problem with inflation is it doesn't hit everywhere in a nation at once
I'd like to add a point (or even a correction): not always all prices rise up altogether; more specifically, not always salary rises in the same rate as products. This has been happening here in Brazil: while most salaries have been increased in accordance with a formal inflation index, many products consumed by all people, such as meat and apartments/houses, have increased far more than the average computed by the index. And the there is the variance related to each economic level of the society: poor people don't have a car here, so the inflation related to oil is irrelevant for them compared to bread. In that case, a smaller inflation in oil but bigger inflation in bread may lead to the average value computed by the index and used to raise that poor guy's minimum wage, but he actually suffered in the process.
At the end, the common Brazilian has actually lost market power since the introduction of the Real.
This series is awesome guys! Thank you Rep. Thomas Massie for showing me this
2:27 what's the logic behind shifting flower production to warmer climates?
I love how Volker aggressively wanted to "hammer inflation to zero" It worked, but the medicine tasted so bitter
@Jonathan Williams volker
@@YuvrajSingh-yp5km Volcker. And he did a good thing.
You sir are an amazing teacher.
Thank you so much for suck great explanation to inflation! Who would've known 4 yrs later, in 2022, covid-19 would send a big inflation shock wave world wide!?
I m from #india . ur courses help me a lot . I m economics student
So all we have to do is trust the BLS calculations; the govs calculations without any acknowledgment of hedonic adjustment? You realize the gov has every incentive to keep the headline inflation number low right? Dollar confidence, social security payments, and overall economic stability to name a few.
If money supply is constant, but yet rise in inflation say because of the depreciation or devaluation of the exchange rate, in that case prices will rise creating a higher demand for money. Probably the output has to come in picture because higher output will generate higher amount of money so it money may not be the only factor responsible for inflation
Didn't we just established in the last video that inflation is about the money supply ? Thus shouldnt we be able to "know" the rate of inflation by "knowing" the increase in money supply ? we don't know how the "inflation" might affecte each price independently because of the noise but shouln't we be able to know the genral rate of inflation by knowing the rate of increase of the money supply ?
Dear professor the Video is Magnificent and really beneficial, but I think that you miss the definition when you said that the inflation is making a redistribution in wealth, i think in my humble opinion that is not totally correct, the inflation concentrate wealth to two parties the Government and the one who are in debt if he / she used that debt in buying an asset . and thanks again for your great effort wish to be in your team, good luck and thanks for sharing Knowledge May God Bless you.
Wages don't rise at the same rate--take a look at how much the minimum wage has changed
In order to do an actual comparison between the rise in the prices of general consumer goods and services on average to that of wages/income, you'd do it with actual income data, because that is how much people are actually earning.
Only a tiny percentage of working Americans earn the minimum wage at any given time, and according to the Bureau of Labor Statistics, most people who get a MW job are earning more than the MW within a year.
I don't think it's a real illusion. Many things are bought on credit and people budget based on how much they have to pay monthly (e.g., car payment, mortgage payment, etc). Inflation squeezes nonfixed expenses only, but a pay cut not only squeezes nonfixed expenses but also makes your budget for these things not go as far. Hence you have the "Angry Professor Syndrome" talked about in another video.
Why just not take the inflation out of the economy, it does no good for anyone?
theLAman because growth and interest rates
Excellent series
Thank you sir for the expansions. nice suit by the way.
In the equation GDP = C+I+G+(X-M), does investment 'I' includes inflow of Foriegn direct investment (FDI) ?
Does investment 'I' includes spending by domestic businesses only?
Does investment 'I' includes spending by foreign businesses in the form of Foreign direct investment (FDI) ?
My brain hurt just reading that :( omg.
How'd we figure real prices though ?
I love your work!
Wasn't this uploaded before?
Yes, we had an error in one of our charts that we corrected.
-Roman
Marginal Revolution University hi,I'm from India , recently our currency was demonetized which led to utter chaos, can u ppl please make a video on that one??
Marginal Revolution University damn it, I got all excited. ah well, keep making videos. this is one of my favorite channels.
Thank you for the suggestion. We agree it's a great topic. Alex Tabarrok is in India right now so hopefully we'll have something for you!
-Roman
Thanks, Zachary! We'll have another one for you on Tuesday. :) -Meg
When was the last time wages adjusted for inflation by doubling? Go ahead and tell people working a minimum wage job demanding "Fight for $15" that inflation is consistently only 2.5%. If you are so sure of your models how about a forecast from all the information we have from 2000-2016? Why is inflation only 2.5% with a National Debt of 22 Trillions dollars? No velocity? The Federal Reserve buying assists?
We never had a one hundred percent inflation per year in the US, so the question of doubling wages to adjust for it did not arise. The fight for doubling the minimum wage was never mainly about inflation.
This video is not trying to forecast inflation at all. It merely explains the concept of money illusion.
The American government does resort to some quantitative easing to reduce the burden of debt, but it would be an inflationary disaster to pay off the whole debt by newly printed money.
I do not see how the question of velocity comes up in this context. Inflation has been small in spite of quantitative easing because the amount of money in circulation did not increase proportionally, since commercial banks did not further lend out the newly printed money.
@@IonSterpan said every hedge fund investment banker Wall Street guy ever you guys live and breathe off of debt you love the s*** out of debt
please make a video on demonetization....
7000% of inflation in Peru = Alan Garcia
you r the best sir :)
Oh yeah, how anyone can predict size of monetary inflation when there is central bank, which has all control of printing the money ))
Venezuela is a Really case of study... Inflation is 10000000000000% in 4 years...
You've uploaded this before
intinya cost of inflation itu apa pak?