Explain why in some countries with high rates of inflation, the inflation rate exceeds the rate of money growth?
HIGH RATE OF INFLATION:
Inflation is always and everywhere a monetary phenomenon
Countries with high rates of inflation have incompetent or
malevolent Central Banks who are actively harming their people (the
users of the currency that central banks manage the Money Supply
of). Sometimes this happens because the politicians of the national
government order the central bank to print too much currency so
that the government can appear to “pay” its obligations without
explicitly raising taxes or borrowing money.
For a current egregious example, see
Venezuela — 254.9% REUTERS/Carlos Garcia Rawlins.
Democratic Republic of Congo — 22.4% Flickr via
Antoine_Moens.
Malawi — 21.7% Shutterstock.
Mozambique — 19.2% Thomson Reuters.
Zambia — 17.9% Reuters/Amr Dalsh.
Ghana — 17.5% ...
Nigeria — 15.7% ...
Kazakhstan — 14.6% ...
INFLATION RATE EXCEEDS THE MONEY GROWTH:
Definitions matter when describing the relationship between rate of money growth and inflation. For example, the first definition of inflation given by the American College Dictionary is any increase in the currency not redeemable in specie. Other definitions consider inflation to be a general rise in the price of goods, which may or may not be directly related to the money growth.
QUANTITY THEORY:
The theory most discussed in the relationship between prices and the money supply is called the quantity theory of money.
is expressed as:
(total money supply) x (velocity of money) = (average price level) x (volume of economic transactions).
CHALLENGES TO QUANTITY THEORY:
According to economists, inflation comes in two varieties: demand-pull and cost-push. Demand-pull inflation occurs when consumers demand goods, possibly because of a larger money supply, at a rate faster than production. Cost-push inflation occurs when the input prices for goods tend to rise, possibly because of a larger money supply, at a rate faster than consumer preferences change.
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