FlationsInflationandDeflation-NYUStern.pdfVIP

Flations: Inflation and Deflation C15.0042 Lesson 9 Edward M. Kerschner Inflation Wholesale prices in the U.S. - 1750-2000 Price Level 200 120 70 40 20 10 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 4.4 % average 1 10% Rolling 10 year Inflation Rate 6 3 4 5 5% 2 1.6 % average 0% -5% 2 3 4 -10% 1 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975E. Kerschner 2000 Inflation Wholesale prices in the U.S. - 1750-2000 Price Level 200 120 70 40 20 10 1750Revolutionary 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000 War World War II Rolling 10 year InflationWorld War Rate I “Great 10% Civil War War of 1812 Society” 5% 0% -5% -10% 1750 1775 1800 1825 1850 1875 1900 1925 1950 1975E. Kerschner 2000 Inflation ? Inflation is not a “natural disaster” that strikes economies randomly, like a drought or a tornado. Inflation is an aberration that occurs when the government pursues a systematic policy in favor of rising prices. E. Kerschner Inflation and Deflationary Policies + Inflation has been used as a primary method of financing wars. Prior to the mid-twentieth century nearly every bout of severe inflation in the U.S. was associated with, and caused by, a war. During the Revolutionary War the Continental dollar lost 99% of its value. The Civil War period did not experience the hyperinflation of the Revolution, but still experienced an annual inflation rate