High Inflation Rates

[1] Something very much like this happens in the circumstances of very high inflation rates, as explained in Chapter 11 “Inflations Big and Small”. [2] There is a subtle question here about whether this aspect of money means that even intrinsically worthless currency must always have some value. If people owe debts to the government that are specified in money terms, then they will be willing to pay something for legal tender currency. [3] In Chapter 3 “The State of the Economy”, we discuss both nominal and real gross domestic product (real GDP). Nominal GDP is the value of all the goods and services produced in an economy, measured in terms of money. Money is used as a unit of account to allow us to add together different goods and services. Even the concept of real GDP uses money as a unit of account: the difference is that we use money prices from a base year to value output rather than current money prices. [4] On a bike trip in the summer of 2002, one of the authors had lunch in a French country restaurant. Though it was many months after the change to the euro, the menu was still in French francs. An elderly lady running the restaurant painstakingly produced a bill in euros: for each entry (in French francs), she multiplied by the exchange rate (euros to francs) and then added the amounts together.