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11 Cards in this Set
- Front
- Back
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Which of the Ten principles of Economics is related to the quantity theory of money?
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Prices rise when the govt prints too much money.
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Why do the economists believe the quantity theory is a good explanation of the long-run behaviour of inflation?
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Inflation is an increase in the overall level of prices
Hyperinflation is an extraordinarily high rate of inflation It is a good representation because it is used to explain the long run determinants of the price level and the inflation rate. inflation ---> directly affects ---> economy's medium of exchange overall price level rises ---> value of money falls. |
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What is inflation?
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Inflation is the increase in prices of goods and services over time.
DAN goes to the grocery store $100 when he first goes to buy food, then a year later DAN goes to the grocery store with the same $100 but to buy what he bought last year he needs to pay $105, 5% inflation rate. |
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What is a medium of exchange? Explain the significance.
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Medium of exchange eliminates the problem of two people who want to barter must trade with things the other person desires for. Medium of exchange is usually in the form of money and this is a primary gain/and or desire for a person.
Medium of exchange is what seller generally accepts and buyers use to pay for goods and services. |
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What HAPPENS WHEN OVERALL PRICE LEVEL RISES?
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VALLLLLLLLLLLLLLLLLUE OF MONEY FALLS
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What is the equation for the value of money, and explain how it is used as a measurement in goods?
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1/P is the value of $1, measured in goods
Where P is the basket of goods, measured in money if P = $2, value of $1 is 1/2 candy bar if P = $3 value of $1 is 1/3 candy bar |
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When was the quantity theory of money developed? What was the name of main economists?
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It was developed by 18th century philosopher and the main economist is David Hume.
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What did Laureate Milton Friedman assert?
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Quantity of money determines the value of money
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What are the two ways of studying the Quantity theory of money
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1.A supply-demand diagram
2. An equation |
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What is money supply?
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supply
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What is Money Demand? What kind of relationship does the quantity of money demanded have with the value of money?
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It refers to how much wealth people want to hold in liquid form.
Depends on P: ↑ in P ---> ↓ reduces the value of money which in turns means more money is required to buy g&s. 2. They are negatively related to the value of money and positively related to P, other things equal. |
