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Suppose transactions are conducted in pesos, and prices are quoted in dollars. The primary function of the pesos are unit of account and store of value Three functions of money medium of exchange, unit of account, store of value unit of account provides a common measure of value (this differs from store of value becuase it is not talking about money hold value) monetary policy management of the money supply and interest rates to achieve macroeconomic objectives According to the Quantity Theory of Money, the growth rate of what is zero? velocity The Quantity Theory of Money states that the money supply has a direct, proportional relationship with the price level There is a strong positive association between ___ and ___ of money over long periods of time inflation and growth rate hyperinflation is caused by large budget deficits financed by raising taxes Core Principles of Money and Banking time affects value, risk requires compensation, information is the basis for decisions, markets set prices and allocate resources, stability improves welfare The purchasing power of money is determined by supply and demand for money When expected inflation decreases for any given nominal interest rate, the bond supply curve shifts left, the real interest rate increases, the price of bonds increases, the cost of borrowing increases What does the Efficient Market Hypothesis state? That all current information is known, and one cannot consistently achieve excessive returns