Econ chapter 17

the supply of money increases when

the Fed makes open-market purchases

the payments you make on your automobile loan are given in terms of dollars. As prices rise you notice you give up fewer goods to make your payments

the dollar amount you pay is a nominal variable. The number of goods you give up is a real value

Kelly puts money in a savings account. One year later she has two percent more dollars and can buy three percent more goods. Kelly earned a real interest rate of

three percent and prices fell one percent

the primary reason people hold money is

to use it as a medium of exchange

your boss gives you an increase in the number of dollars you earn per hour. This increase in pay makes

your nominal wage increase. If your nominal wage rose by a greater percentage than the price level, then your real wage also increased

there was hyperinflation during the

early part of the current century in Zimbabwe

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

if the price level last year was 180 and this year it is 176, then

there was deflation of 2.2%

most economists believe that monetary neutrality provides

a good description of the long run, but not the short run

the term hyperinflation refers to

a period of very high inflation

the classical theory of inflation

all of the above (is also known as the quantity theory of money, was developed by some of the earliest economic thinkers, is used by most modern economists to explain the long-run determinants of the inflation rate)

deflation

decreases incomes and reduces the ability of debtors to pay off their debts

when the money market is drawn with the value of money on the vertical axis, as the price level increases, the value of money

decreases, so the quantity of money demanded increases

when the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises

suppose an economy produces only ice cream cones. If the price level rises, the value of currency

falls, because one unit of currency buys fewer ice cream cones

which of the following is correct?

if the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does not shift the money supply curve

according to monetary neutrality and the Fisher effect, an increase in the money supply growth rate eventually increases

inflation and nominal interest rates, but does not change real interest rates

which of the following statements about inflation is correct?

inflation does not in itself reduce people's real purchasing power

wealth is redistributed from creditors to debtors when inflation was expected to be

low and it turns out to be high

if there is inflation, then a firm that has kept its price fixed for some time will have a

low relative price. Relative-price variability rises as the inflation rate rises

the price level rises if either

money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money

when inflation rises, people tend to go to the bank

more often, giving rise to Shoeleather costs

in the U.S., taxes on capital gains are computed using

nominal gains, this is one way by which higher inflation discourages saving

inflation can be measured by the

percentage change in the CPI

when the money market is drawn with the value of money on the vertical axis, an increase in the money supply shifts the money supply curve to the

right, raising the price level

on a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store

the $80 is a nominal variable. The quantity of shoes is a real variable

the supply of money increases when

the federal reserve purchases bonds

money demand depends on

the price level and the interest rate

According to the assumptions of the quantity theory of money, if the money supply increases 5 percent, then

the price level would rise by 5 percent and real GDP would be unchanged

the economy of Mainland uses gold as its money. If the govt. discovers a large reserve of gold on their land

the supply of money increases and the value of money falls

when the CPI falls from 110 to 100

there is deflation of 9.1% and the value of money increases