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Econ 343 Midterm 2
Terms in this set (3)
Why might the supply of money be perfectly inelastic?
If the quantity of money is a variable determined by the monetary authority, then it does not respond to the changes in the price of money. Central banks control the supply of base money, so it is common to draw the supply of base money as being perfectly inelastic.
Why might the supply of money be relatively elastic?
If the supply of money is not perfectly elastic, then it's quantity will respond to changes in demand that alter its price. We refer to this as the supply curve being upward sloping. It's value measured by the vertical axis (Pm), increases as the value measured by the horizontal axis, M, increases.
Explain how lending increase the quantity of money in circulation.
The increase in the quantity of money that results from improved economic growth is reflected in the definition of the total money stock: Mt = Mb + Mc
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