HW: Money, Inflation & Quantity
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 ____________.
