HW: Money, Inflation & Quantity

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Fiat money is used as legal tender by gov't decree and other people will accept it as payment for transactions

If fiat money is intrinsically worthless, then why is it valuable?

positive

If the growth rate of money supply is larger than the growth rate of real​ GDP, the inflation rate is

the gap between the growth of money supply and the growth rate of real gdp (money supply - Real GDP)

according to the quantity theory of money , the inflation rate is

the money supply growing faster than real GDP

according to the quantity theory of money, inflation is caused by ____________

seignorage

difference between the cost of printing paper money and the value of the goods and services that the government can purchase with the newly printed money.

large budget deficits financed by printing more money

hyperinflation is most likely caused by

the growth rate of real GDP > the growth rate of money supply

if the inflation rate is negative then,

quantity theory of money

in the long run , the growth in the money supply is directly related to the inflation rate

FIAT MONEY

. something that is used as legal tender by government decree and is not backed by a physical commodity

10% (they are constant)

the quantity theory of money implies that if the money supply grows by 10%, then nominal GDP needs to grow by _______

nominal GDP / money supply

what is the equation for velocity in the quantity theory of money?

3.7% 1.4%

According to the quantity theory of​ money, what must the growth rate of the money supply be given the following​ information? The growth rate of real GDP is 2.3​%. The growth rate of nominal GDP is 3.7​%. The nominal interest rate is 4.2​%. The real interest rate is 2.8​%. The money supply​ (M2) is ​$8 comma 591 ​(in billions) According to the quantity theory of​ money, the growth rate of the money supply must be _____ According to the quantity theory of​ money, the inflation rate is ______

yes, the long run data show a one for one growth rate of money supply and inflation

Are the predictions of the quantity theory of money borne out by historical​ data?

Fiat money is intrinsically​ worthless, whereas gold and silver have intrinsic value.

How does fiat money differ from commodities like gold and silver that were used as​ money?

significance of the real wage as it relates to​ inflation

Since an increase in inflation reduces the real wage that firms must​ pay, firms are more willing to hire​ workers, thus stimulating economic activity.

currency in​ circulation, checking​ accounts, savings​ accounts, travelers'​ checks, and money market accounts

The M2 money supply is defined to include​ ___________.

the ratio of money supply to nominal GDP is exactly constant

The quantity theory of money assumes that​ ____________

real wage

inflation adjusted wages

quantity equation M x V = P x Y

money supply multiplied by the velocity of the money equals price level multiplied by the real output

equal to the gap between the growth rate of money supply and the growth rate of real GDP.

quantity theory of money: It follows that the growth rate of money supply and the growth rate of nominal GDP will be the same. In this​ case, inflation is​ ____________.


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