Macroeconomics

Money and Prices in Interwar Germany

Panel (a) shows the

money supply and the price level in Germany from January 1922 to

December 1924. The immense increases in the money supply and

the price level provide a dramatic illustration of the effects of print-

ing large amounts of money. Panel (b) shows inflation and real

money balances. As inflation rose, real money balances fell. When

the inflation ended at the end of 1923, real money balances rose.

Source: Adapted from Thomas J. Sargent, “The End of Four Big Inflations,” in

Robert Hall, ed., Inflation (Chicago: University of Chicago Press, 1983), 41–98.