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.