Study your flashcards anywhere!

Download the official Cram app for free >

  • Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

How to study your flashcards.

Right/Left arrow keys: Navigate between flashcards.right arrow keyleft arrow key

Up/Down arrow keys: Flip the card between the front and back.down keyup key

H key: Show hint (3rd side).h key

A key: Read text to speech.a key

image

Play button

image

Play button

image

Progress

1/24

Click to flip

24 Cards in this Set

  • Front
  • Back
alternatively, we can view the price level as a measure of the value of money
nb
nb
in the long run, the overall level of prices adjusts to the level at which the demand for money equals the supply
nb
nb
if the PRICE LEVEL is above the equilibrium level, ppl will want
to hold more money than the fed has created so the Price level must FALL to balance S&D
if the PRICE LEVEL is below the equilibruim level ppl will want to
hold less money than the fed has created and the prive level must rise to balance S&D
quantity theory of money
a theory asserting that the quantity of money available determines the price level and the growth rate in the quantity of money available determines the inflatoin rate
nominal variables
variables measured in monetary units
real variables
variables measured in physical units
classical dichotomy
the theoretical separation of nominal and real variables
monetary neutrality
the proposition that changes in the money supply do not affect real variables
velocity of money
the rate at which money changes hand
velocity of money=
v=
(price level*y)/quanity of money
(p*y)/M
quantity equation
m*v=p*y
which relates the quantity of money the velocity of money and the dollar value of the economy's output of G and S
Elements necessary to explain equilibrium price level and inflation rate (1)
the velocity of money is relatively stable over time
Elements necessary to explain equilibrium price level and inflation rate (2)
because velocity is stable, when the central bank changes the quantity of money (M), it causes proportionate changes in the nominal value of output
elements necessary to explain equilibrium price level and inflation rate (3)
b/c money is neutral money does not affect output
elements necessary to explain equilibrium price level and inflation rate (4)
WITH OUTPUT (Y) determined by factor supplies and technology when the central bank alters the money supply (m) and induces proportional changes in the nominal value output (p*Y)
-these changes are reflected in the changes in the price level (p)
elements necessary to explain equilibrium price level and inflation rate (5)
therefor when the central bank increases the money supply rapidly, the result is a high rate of inflation
inflation tax
the revenue the govt raises by creating money
-a tax on eveyone who has money
fisher effect
the one for one adjustment of the nominal interest rate to inflation rate
when the fed increases the rate of money growth, the result is...
a higher inflation rate and a higher nominal interest rate
inflation itself does not reduce ppls real purchasing power
nb
nb
shoeleather costs
the resources wasted when inflation encourages ppl to reduce their money holdings
menu costs
the costs of changing prices
because of inflation induced tax changes, higher inflation tends to discourages ppl from saving
nb
nb