Page 611 - The Principle of Economics

MONEY GROWTH AND INFLATION
Although today you need a dollar or two to buy yourself an ice-cream cone, life was very different 60 years ago. In one Trenton, New Jersey, candy store (run, inci- dentally, by this author’s grandmother in the 1930s), ice-cream cones came in two sizes. A cone with a small scoop of ice cream cost three cents. Hungry customers could buy a large scoop for a nickel.
You are probably not surprised at the increase in the price of ice cream. In our economy, most prices tend to rise over time. This increase in the overall level of prices is called inflation. Earlier in the book we examined how economists measure the inflation rate as the percentage change in the consumer price index, the GDP deflator, or some other index of the overall price level. These price indexes show that, over the past 60 years, prices have risen on average about 5 percent per year.
IN THIS CHAPTER YOU WILL . . .
See why inflation results from rapid growth in the money supply
Learn the meaning of the classical dichotomy and monetary neutrality
See why some countries print so much money that they experience hyperinflation
Examine how the nominal interest rate responds to the inflation rate
Consider the various costs that inflation imposes on society
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