Macro ch. 17
Money demand refers to
how much wealth people want to hold in liquid form
The costs of changing price tags and price listings are known as
menu costs
When inflation rises, people tend to go to the bank
more often; giving rise to shoeleather costs
The price level is a
nominal variable
The value of money falls as the price level
rises, because the number of dollars needed to buy a representative basket of goods rises.
When the money market is drawn with the value of money on the vertical axis, if the Federal Reserve buys bonds, then the money supply curve
shifts rightward, causing the price level to rise
The supply of money increases when
the Fed makes open-market purchases
The Fisher effect says that
the nominal interest rate adjusts one for one with the inflation rate.
The inflation tax refers to
the revenue a government creates by printing money
The classical dichotomy argues that changes in the money supply
affect nominal variables, but not real variables
When prices are falling, economists say that there is
deflation
If P denotes the price of goods and services measured in terms of money, then
-1/P represents the value of money measured in terms of goods and services. -P can be regarded as the "overall price level." -an increase in the value of money is associated with a decrease in P.
If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate?
4.5%
If velocity = 5, the price level = 1.5, and the real value of output is 2,500, then the quantity of money is
750
If M = 3,000, P = 2, and Y = 12,000, what is velocity?
8
The term hyperinflation refers to
A period of high inflation
If the Fed increases the money supply, then 1/P
Falls, so the value of money falls
According to the quantity equation, if P = 4 and Y = 450, then which of the following pairs of values are possible?
M = 600, V =3
Economic variables whose values are measured in goods are called
Real variables
The supply of money is determined by
The federal reserve system
When the money market is drawn with the value of money on the vertical axis, if the money supply rises
The price level rises and the value of money falls.
Interest rates adjusted for the effects of inflation
are real variables; inflation is a nominal variable
According to the quantity theory of money, a 2 percent increase in the money supply
causes the price level to rise by 2 percent
If the economy unexpectedly went from inflation to deflation,
creditors would gain at the expense of debtors
Printing money to finance government expenditures
imposes a tax on everyone who holds money
Monetary neutrality implies that an increase in the quantity of money will
increase the price level
Open-market purchases by the Fed make the money supply
increase, which makes the value of money decrease.