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Macro Chapter 5
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Terms in this set (33)
Inflation
an increase in overall price level
Hyperinflation
extremely high inflation
quantity equation
the indentity stating that the product of the money supply equals the nominal expenditure (MV = PY) coupled with the assumption of stable velocity, the quantity theory of money
transaction velocity of money
The ratio the dollar value of all transaction to the money supply
income velocity of money
the ratio of national income to the GDP
real money balaces
The quantity of money expressed in terms of the quantity of goods and services it can buy, the quantity of money divided by the price level
Money Demand Function
A function showing the derminants of the demand for real money balances
Quantity theory of money
changes in the quantity of money lead to changes in nominal expenditure
Seigniorage
The revenue raised by the government through the creation of money, inflation tax
Nominal and real interest rates
The return to saving and the cost of borrowing without adjustment for inflation, and with adjustment for for inflation
Fish equation and Fisher Effect
The one for one influence of expected inflation on nominal interest rates
Ex ante real
the real interest rate anticipated when a loan is made; the nominal interest rate minus expected inflation
Ex post real
the real interest rate actually noticed , nominal interest rate minus actual inflation
Shoe leather Costs
The cost of inflation from reducing real money balances, such as inconviance of making frequent trips to the bank
Menu Costs
The cost of changing price
Real and nominal variables
measured in constant
Classical dichotmy
the theoretical separation of real and nominal variables, nominal variable dont effect real variables
Monetary neutraily
the property that a change in money supply does not influence real variables
"Inflation tax" means that
as the price level rises, the real value of money held by the public decreases.
hyperinflation
A rate of inflation that exceeds 50 percent per month is typically referred to as a(n
Costs of inflation
taxing nominal capital gains that aren't real, shoeleather costs, menu costs, leads to taxing of nominal capital
real
quantities of things
Equilibrium in the market for goods and services determines the ______ interest rate and the expected rate of inflation determines the ______ interest rate.
ex ante real; ex ante nominal
If the nominal interest increases, then:
the demand for money decreases.
n the long run, according to the quantity theory of money and the classical macroeconomic theory, if velocity is constant, then ______ determines real GDP and ______ determines nominal GDP.
the productive capability of the economy; the money supply
monetary neutrality
The characteristic of the classical model that the money supply does not affect real variables is called:
actual rate of inflation is less than the expected rate of inflation.
The ex post real interest rate will be greater than the ex ante real interest rate when the:
Income velocity of money:
is defined in the identity MV = PY.
nominal interest rate
The opportunity cost of holding money is the
velocity is constant
he quantity theory of money assumes that
classical dichotomy
The theoretical separation of real and monetary variables is called:
nominal
Variables expressed in terms of money are called
relative price
the real interest rate
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