Macro Ch. 17 - Assignment Essays

question

The term hyperinflation refers to

answer

a period of very high inflation.

question

The value of money falls as the price level

answer

rises, because the number of dollars needed to buy a representative basket of goods rises

question

If P represents the price of goods and services measured in terms of money, then

answer

-P can be regarded as the "overall price level."

-an increase in the value of money is associated with a decrease in P.

-1/P represents the value of money measured in terms of goods and services.

question

According to the quantity theory of money, a 2 percent increase in the money supply

answer

causes the price level to rise by 2 percent.

question

The supply of money is determined by

answer

the Federal Reserve System.

question

If the economy unexpectedly went from inflation to deflation,

answer

creditors would gain at the expense of debtors.

question

Economic variables whose values are measured in goods are called

answer

real variables.

question

The classical dichotomy argues that changes in the money supply

answer

affect nominal variables, but not real variables.

question

Printing money to finance government expenditures

answer

imposes a tax on everyone who holds money.

question

The Fisher effect says that

answer

the nominal interest rate adjusts one for one with the inflation rate.

question

Price rises when

answer

the gov. prints too much money

question

Most economists believe the quantity theory is a good explanation

answer

of the long run behavior of inflation

question

when the price level rises

answer

people have to pay more for goods and services that they purchase (price level as the price of a basket of goods and services)

question

a rise in the price level also means that the value of money is now lower because

answer

each dollar now buys a smaller quantity of goods and services (price level as a measure of the value of money)

question

P=the price level (e.g., the CPI of GDP deflator) is

answer

the price of basket goods, measured in money

question

if P is the price level, then the quantity of goods and service that can be purchased with $1 is equal to

answer

1/P (1/P is the value of $1, measured in goods)
EX. basket contains one candy bar
if P=$2, value of $1 is 1/2 candy bar
if P=$3, value of $1 is 1/3 candy bar

question

inflation drives up prices, and

answer

drives down the value of money

question

quantity theory of money developed by the 18th century philosopher and the classical economists

answer

milton friedman

question

we study the quantity theory of money using two approaches

answer

1. a supply-demand diagram
2. an equation

question

money supply (MS)

answer

in real world, determined by ferderal reserve, the banking system, and consumers

question

for money demand (MD) an increase in P

answer

reduces the value of money

question

quantity of money demanded is ______ related to the value of money and _______ related to P, other things equal

answer

negatively
positively

question

the fed sets MS at some fixed value

answer

regardless of P

question

for the money-supply demand a fall in value of money (or increase in P)

answer

increase the quantity of money demanded

question

For money supply
P adjusts to equate quantity of money demanded

answer

with money supply

question

nominal variables

answer

are measured in monetary units
EX. nominal GDP, the dollar value of the economy's output of final goods and services

question

real variables

answer

are measured in physical units.
EX. real GDP, real wages (measured in output)

question

a relative price

answer

is the price of one good relative to (divided by) another.
-Relative price of CDs in terms of pizza
price of CD/price of pizza

question

classical dichotomy

answer

the theoretical separation of nominal and real variables

question

hume and the classical economists

answer

suggested the monetary developments affect nominal variables but not real variables

question

monetary neutrality

answer

the proposition that changes in the money supply do not affect the real variables

question

most economists believe the classical dichotomy and neutrality of money describe the economy in the

answer

long run

question

velocity of money

answer

the rate at which money changes hands or the average number of times per year a dollar is spent

question

hyperinflation

answer

defined as inflation exceeding 50% per month
-excessive growth in they money supply always causes hyperinflation

question

the inflation fallacy

answer

where most people think inflation gradually destroys real incomes

question

shoeleather costs

answer

the resources wasted when inflation encourages people to reduce their money holdings

1 of 36

question

The term hyperinflation refers to

answer

a period of very high inflation.

question

The value of money falls as the price level

answer

rises, because the number of dollars needed to buy a representative basket of goods rises

question

If P represents the price of goods and services measured in terms of money, then

answer

-P can be regarded as the "overall price level."

-an increase in the value of money is associated with a decrease in P.

-1/P represents the value of money measured in terms of goods and services.

question

According to the quantity theory of money, a 2 percent increase in the money supply

answer

causes the price level to rise by 2 percent.

question

The supply of money is determined by

answer

the Federal Reserve System.

question

If the economy unexpectedly went from inflation to deflation,

answer

creditors would gain at the expense of debtors.

question

Economic variables whose values are measured in goods are called

answer

real variables.

question

The classical dichotomy argues that changes in the money supply

answer

affect nominal variables, but not real variables.

question

Printing money to finance government expenditures

answer

imposes a tax on everyone who holds money.

question

The Fisher effect says that

answer

the nominal interest rate adjusts one for one with the inflation rate.

question

Price rises when

answer

the gov. prints too much money

question

Most economists believe the quantity theory is a good explanation

answer

of the long run behavior of inflation

question

when the price level rises

answer

people have to pay more for goods and services that they purchase (price level as the price of a basket of goods and services)

question

a rise in the price level also means that the value of money is now lower because

answer

each dollar now buys a smaller quantity of goods and services (price level as a measure of the value of money)

question

P=the price level (e.g., the CPI of GDP deflator) is

answer

the price of basket goods, measured in money

question

if P is the price level, then the quantity of goods and service that can be purchased with $1 is equal to

answer

1/P (1/P is the value of $1, measured in goods)
EX. basket contains one candy bar
if P=$2, value of $1 is 1/2 candy bar
if P=$3, value of $1 is 1/3 candy bar

question

inflation drives up prices, and

answer

drives down the value of money

question

quantity theory of money developed by the 18th century philosopher and the classical economists

answer

milton friedman

question

we study the quantity theory of money using two approaches

answer

1. a supply-demand diagram
2. an equation

question

money supply (MS)

answer

in real world, determined by ferderal reserve, the banking system, and consumers

question

for money demand (MD) an increase in P

answer

reduces the value of money

question

quantity of money demanded is ______ related to the value of money and _______ related to P, other things equal

answer

negatively
positively

question

the fed sets MS at some fixed value

answer

regardless of P

question

for the money-supply demand a fall in value of money (or increase in P)

answer

increase the quantity of money demanded

question

For money supply
P adjusts to equate quantity of money demanded

answer

with money supply

question

nominal variables

answer

are measured in monetary units
EX. nominal GDP, the dollar value of the economy's output of final goods and services

question

real variables

answer

are measured in physical units.
EX. real GDP, real wages (measured in output)

question

a relative price

answer

is the price of one good relative to (divided by) another.
-Relative price of CDs in terms of pizza
price of CD/price of pizza

question

classical dichotomy

answer

the theoretical separation of nominal and real variables

question

hume and the classical economists

answer

suggested the monetary developments affect nominal variables but not real variables

question

monetary neutrality

answer

the proposition that changes in the money supply do not affect the real variables

question

most economists believe the classical dichotomy and neutrality of money describe the economy in the

answer

long run

question

velocity of money

answer

the rate at which money changes hands or the average number of times per year a dollar is spent

question

hyperinflation

answer

defined as inflation exceeding 50% per month
-excessive growth in they money supply always causes hyperinflation

question

the inflation fallacy

answer

where most people think inflation gradually destroys real incomes

question

shoeleather costs

answer

the resources wasted when inflation encourages people to reduce their money holdings

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