FR2901 Lecture four

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FR2901Lecture four

• France and the world economy since Mitterrand

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Inflation a post-war constant

• Dormois, 20

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Vicissitudes of Mitterrands economic policies

• January introduction of European Monetary
  System
• May François Mitterrand elected President
• June increase in minimum wage increases in
  pensions and family allowances
• October devaluation of the franc beginning of
  nationalization of industrial groups and banks
• January introduction of thirty-nine-hour week
  and five weeks paid holiday
• June devaluation of the franc pay and price
  freeze emergent balance of payments crisis
  cuts in the public budget
• March devaluation of the franc austerity plan
• March job-cuts in steel and coal industries
• January reflation through cuts in taxation
• January budget cuts in direct taxes cuts in
  civil service jobs
• March right wins legislative elections Chirac
  becomes Prime Minister
• June beginning of privatizations
• 1987 January deregulation of stock exchange and
  financial institutions

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What is inflation?
A persistent tendency for prices and money wages
to increase. Inflation is measured by the
proportional changes over time in some
appropriate price index, commonly a consumer
price index or a GDP deflator. Because of changes
in the type and quality of goods available,
measures of inflation are probably not reliable
to closer than a margin of 1 or 2 per cent a
year, but if prices rise faster than this there
is no doubt that inflation exists.

• "inflation" A Dictionary of Economics. John
  Black. Oxford University Press, 2002.

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Cost and demand inflation
Economists have attempted to distinguish cost and
demand inflation. Cost inflation is started by an
increase in some element of costs, for example
the oil price explosion of 19734. Demand
inflation is due to too much aggregate demand.
Once started, inflation tends to persist through
an inflationary spiral, in which various prices
and wage rates rise because others have risen.
The inflation tax is the real cost to the holders
of money due to its loss of real purchasing power
during inflation. Hyperinflation is extremely
rapid inflation, in which prices increase so fast
that money largely loses its convenience as a
medium of exchange.

• "inflation" A Dictionary of Economics. John
  Black. Oxford University Press, 2002.

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Deflation and désinflation
A fall in the level of economic activity in a
country. Lower levels of economic activity as
seen in such things as lower rates of increase in
wages and prices. It can be induced by monetary
policy (increasing interest rates and restricting
growth in money supply) and fiscal policy
(increasing taxes and reducing government
expenditure), or both. The aims of deflation
might include an improvement in the balance of
payments, partly achieved by lowering total
demand and thereby imports, and partly by
disinflation and improving exports, by operating
upon aggregate demand, to reduce inflation.

• "deflation" The Handbook of International
  Financial Terms. Peter Moles and Nicholas Terry.
  Oxford University Press 1997.