FTC1 Chapter 12

The relationship between the quantity of money demanded and the nominal interest rate, when all other influences on the amount of money that people wish to hold remain the same?

Demand for money

An equation that states that the quantity of money multiplied by the velocity of circulation equals the price level multiplied by real GDP?

Equation of exchange

What does the "long run" refer to?

The long run refers to the economy at full employment when real GDP equals potential GDP .

Inflation decreases potential GDP, slows economic growth, and consumes leisure time. These outcomes occur for what four reasons, also known as the four costs of inflation?

1. Tax costs, 2. Shoe-leather costs, 3. Confusion costs, and 4. Uncertainty costs

With regard to the quantity of money demanded what do we mean by the "price" of money?

1. the value of money, the quantity of goods and services that a dollar will buy, and 2. the opportunity cost of holding money, the goods and services forgone by holding money rather than some other asset

Inflation at a rate that exceeds 50 percent a month (which translates to 12,875 percent per year)?

Hyperinflation

The amount of money that households and firms choose to hold?

Quantity of money demanded

The proposition that when real GDP equals potential GDP, an increase in the quantity of money brings an equal percentage increase in the price level?

Quantity theory of money

A combination of recession (falling real GDP) and inflation (rising price level)?

Stagflation

The relationship between the quantity of money supplied and the nominal interest rate?

Supply of money

What determines the quantity of money demanded?

The "price" of money

Costs that arise from an increase in the velocity of circulation of money and an increase in the amount of running around that people do to try to avoid incurring losses from the falling value of money?

The "shoe-leather costs" of inflation

The three main influences on the demand for money are?

The price level, Real GDP, and Financial technology

The average number of times in a year that each dollar of money gets used to buy final goods and services?

Velocity of circulation

When the interest rate falls, the opportunity cost of holding money falls and the quantity of money demanded increases there is a movement in what direction along the demand for money curve?

down along the demand for money curve

In the long run and other things remaining the same, a change in the growth rate of the quantity of money brings an equal change in the?

inflation rate

Because the opportunity cost of holding money is the nominal interest rate on an alternative asset, other things remaining the same, the higher the nominal interest rate?

the smaller is the quantity of money demanded.

When the interest rate rises, everything else remaining the same, the opportunity cost of holding money rises and the quantity of money demanded decreases there is a movement in what direction along the demand for money curve?

up along the demand for money curve