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Econ 201 ch. 17
second midterm
21
Economics
Undergraduate 1
11/10/2009

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Cards

Term
Value of Money
Definition

-Will decrease as inflation increases

-will increase as deflation increases

Term
the Quantity theory of money
Definition
The quantity of money available determines the price level and the growth rate of money deteremines the inflation rate.
Term
What determines the value of money?
Definition
Supply and Demand determines the value of money
Term
What controls the supply of money in the real world?
Definition

The federal reserve

Banks

peoples decision on how they spend money

Term
Price level
Definition
The inverse of the value of money
Term
Price level and money supply
Definition
Check graph on pg. 363
Term
Nominal variable
Definition
Variables measured in monetary units
Term
real variable
Definition

variables measured in physical units. like relative price of cd in pizzas

Price of CD/Price of Pizza

 

unaffected by price changes

Term
real wage
Definition
Wage/Price level
Term
Monetary neutrality
Definition
changes in the money supply do not affect real variables
Term
Velocity of money
Definition

the rate at which money changes hands. also, the average number of times a dollar bill is used to purchase new goods and services

Velocity = nominal GDP/Money supply =

(P x Y)/M

M x V = P x Y

Term
Is velocity stable over time
Definition
Y
Term
Q: What happens when there is a change in money Supply
Definition
A: it willl proportionallly affect the nominal value of output or P x Y
Term
what does Economic Growth increase
Definition
the number of transactions
Term
Hyper flation
Definition
when price levels rise 50% per month
Term
Inflation tax
Definition
The revenue gain from the printing of money by the government. Printing money reduces the value of a dollar. acts like a tax
Term
The Fisher Effect
Definition
the one for one adjustment of nominal interest rates with the inflation rate
Term
What is the worst part of inflation
Definition
money doesnt go as far. can buy less
Term
Shoeleather costs
Definition
resources wasted when the inflation encourages people to reduce money holdings
Term
Arbitrary distribution of Wealth
Definition
The purchasing power transferred from creditor to debtor in unexpectedly high inflation.
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