Macroeconomics Chapter 12

If the Fed wants to raise the interest rate, in the short run in the money market the Fed

Decreases the quantity of money

the proposition that in the long run when real GDP equals potential GDP, an increase in the quantity of money leads to an equal percentage increase in the price level is called the quantity theory of

Money

when the price level increases, people demand ____ money and the demand for money curve____.

More; Shifts rightward

as the economy enters a strong expansion in which real GDP increases, which of the following occurs?

The demand for money curve shifts rightward.

Suppose the nominal interest rate on a savings bond is 7 % a year and the inflation rate is 4.5 % a year. How much is the real interest rate?

2.5 %

Suppose nominal GDP is $2,000 a year and the quantity of money is $400. Then the velocity of circulation equals

5

The demand for money curve slopes downward because a rise in the nominal interest rate___ the opportunity cost of holding money and therefore___the quantity of money demanded.

Increases; Decreases

Inflation is a tax because as the government____ the quantity of money, the price level____, and the purchasing of power of households' money____.

Increases; Rises; Decreases

The supply of money curve is

Verticale because the quantity of money is fixed at any one moment.

the increased use of credit cards leads to

a leftard shift in the demand for money curve.

The velocity of circulation is defined as the

average number of times in a year that each dollar is used to buy goods and services.

the opportunity cost of holding money is that you

forego interest on an alternative asset.

Hyperinflation is defined as periods of

inflation over 50 % per month.

In the early 1920s, Germany experienced hyperinflation because Germany's

quantity of money was growing very rapidly.

Because the inflation rate is so high Wanda refuses to carry cash. Even though it is a bother, she now goes to the ATM twice as often to get cash she needs. Wanda's actions are an example of the

shoe- leather cost of inflation.