macroeconomics ch. 30
When prices are falling, economists say that there is
deflation
The classical dichotomy refers to the idea that the supply of money
determines nominal variables, but not real variables
The principle of monetary neutrality implies that an increase in the money supply will
increase the price level, but not real GDP
The price level is a
nominal variable
Inflation can be measured by the
percentage change in the consumer price index
Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual quantities are measured along the axes.
supply of money that is represented by the distance between points A and B
The velocity of money is
the average number of times per year a dollar is spent
The Fisher effect says that
the nominal interest rate adjusts one for one with the inflation rate
Refer to Figure 30-2. What quantity is measured along the horizontal axis?
the quantity of money
Refer to Figure 30-3. What quantity is measured along the vertical axis?
the value of money
The nominal interest rate is 6 percent and the inflation rate is 3 percent. What is the real interest rate?
3 percent
The nominal interest rate is 6 percent and the real interest rate is 2.5 percent. What is the inflation rate?
3.5 percent
If M = 2,000, P = 2.25, and Y= 6,000, what is velocity?
6.75
If the price level increased from 120 to 130, then what was the inflation rate?
8.3 percent
The classical theory of inflation
All of the above are correct
The inflation tax
All of the above are correct
Which of the following would decrease the value of money?
Money demand exceeds money supply
The term hyperinflation refers to
a period of very high inflation
The quantity theory of money
can explain both moderate inflation and hyperinflation