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
