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A Classroom Inflation Uncertainty Experiment

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  • Denise Hazlett

    () (Whitman College)

Abstract

This classroom experiment uses a double oral auction credit market to demonstrate how inflation uncertainty causes a wealth transfer between borrowers and lenders. The experiment also shows the social cost of inflation uncertainty when borrowers and lenders cannot agree on a nominal interest rate that compensates each for their risk. In this case, the credit market fails to allocate funds to the highest-valued investment projects. The experiment provides hands-on experience with the effects of anticipated and unanticipated inflation, giving students a common background for a discussion of the economic costs of inflation. It can be used in principles, intermediate macroeconomics, money and banking, or financial economics courses, with 860 students. It takes approximately 50 minutes to run and requires no computers.

Suggested Citation

  • Denise Hazlett, 2008. "A Classroom Inflation Uncertainty Experiment," International Review of Economic Education, Economics Network, University of Bristol, vol. 7(1), pages 47-61.
  • Handle: RePEc:che:ireepp:v:7:y:2008:i:1:p:47-61
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    File URL: http://www.economicsnetwork.ac.uk/iree/v7n1/hazlett.pdf
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    Cited by:

    1. Tisha Emerson & Denise Hazlett, 2011. "Classroom Experiments," Chapters,in: International Handbook on Teaching and Learning Economics, chapter 7 Edward Elgar Publishing.
    2. Don J. Webber & Andrew Mearman, 2009. "Students’ perceptions of economics:Identifying demand for further study," Working Papers 0914, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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