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Mac econ chapter 30
Terms in this set (29)
Inflation can be measured by the
percentage change in the consumer price index
to explain the long-run determinants of the price level and the inflation rate, most economist today rely on
quantity theory of money
when price levels fall the number of dollars needed to buy a representative basket of good..
decreases, so the value of money rises
the supply of money Is determined by
the federal reserve system
with the value of money on the vertical axis, the money supply curve is
vertical because we assume the central bank controls the money supply
the supply of money increases when..
the Fed makes open market purchases
Money demand refers to
how much wealth people want to hold in liquid form.
money demand depends on
the price level and the interest rate
as the price level rises, the value of money
decreases, so people want to hold more of it
when the money market is drawn with the value of money on the vertical axis, as the price level decreases the quantity of money..
when the money market is drawn with the value of money on the vertical axis, an increase in the money supply causes the equilibrium value of money
to decrease, while the equilibrium quantity of money increases
in the 1970's, in response to recessions caused by an increase in the price of oil, the central banks in many countries increased their money supplies. The central banks might have done this by
purchasing bonds on the open market, which would have lowered the value of money
when the money market is drawn with the value of money on the vertical axis, if the federal reserve sells bonds, then the money supply curve
shifts leftward, causing the value of money measured in terms of goods and services to rise
monetary neutrality means that a change in the money supply
does not change real variables. Most economists think this is a good description of the economy in the long run but not the short run.
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
according to the quantity theory of money, a 3 percent increase in the money supply
causes the price level to rise by 3 percent
the inflation tax refers to
the revenue a government creates by printing money
shoe leather cost refers to
resources used to maintain lower money holdings when inflation is high
people go to the bank more frequently to reduce currency holdings when inflation is high. The sacrifice of time and convince that is involved in doing that is referred to as
shoe leather cost
the cost of changing prices
the resources wasted when inflation encourages people to reduce their money holdings
for given a real interest rate, an increase in inflation makes the after tax real interest rate
decrease, which discourages savings
you put your money into an account that earns a 5 percent nominal interest rate. The inflation rate is 3 percent and your marginal tax rate is 20 percent. what is your after tax rate of interest?
.8(5)= 4 %
you put your money into an account that earns 8% nominal interest rate. the inflation rate is 3 % and your marginal tax rate is 25 %. what is your after tax real rate of interest.
wealth is redistributed from debtors to creditors when inflation is
if inflation is higher than what was expected
creditors receive a lower real interest rate than they had anticipated
in order to maintain stable prices, a central bank must
tightly control the money supply
why is the money supply curve vertical?
the fed sets the amount of money available with out consideration for the value of money (doesn't depend on interest rates)
why is the money demand curve downward sloping?
because the value of money decreases consumers are forced to carry more money to make purchases because goods and services cost more money.
THIS SET IS OFTEN IN FOLDERS WITH...
Econ Chap 17
Chapter 29 Economics
Macroeconomics 102 Chapter 17
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