Econ Ch. 5

small; infrequently

Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______.

need to generate revenue to pay for spending.

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's:

the price level is proportional to the money supply.

If velocity is constant and, in addition, the factors of production and the production function determine real GDP, then:

nominal interest rate.

In its most general formulation, the demand function for real balances depends on the level of income and the:

c. the nominal interest rate.

In the classical model, according to the quantity theory of money and the Fisher equation, an increase in money growth increases:

the productive capability of the economy; the money supply

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.

A velocity of x means that each dollar was used (or "changed hands") about x times to pay for final goods and services in the US in a given year. This is the speed at which money circulated in the economy in a given year

Interpret Velocity

fiscal; seigniorage

Most hyperinflations end with _____ reforms that eliminate the need for _____.

The definition of hyperinflation is an inflation rate of 50% (or higher) in a country in a month

Define Hyperinflation

nominal; high

Evidence from the past 40 years in the United States supports the Fisher effect and shows that when the inflation rate is high, the ______ interest rate tends to be ______.

menu costs.

The costs of reprinting catalogs and price lists because of inflation are called:

actual rate of inflation is less than the expected rate of inflation.

The ex post real interest rate will be greater than the ex ante real interest rate when the:

One standard solution to hyperinflation is to stop the growth in the money supply. One way to do that would be for a country's government to stop printing money to generate government revenue. (

What is one standard solution to hyperinflation?

Real money balances equal the:

amount of money expressed in terms of the quantity of goods and services it can purchase.

If the expected inflation rate increases by one percentage point, the nominal interest rate will increase by one percentage point.

if expected inflation rose by one percentage point, what would happen to the nominal interest rate?