Quiz 5/6 Macro

- Pizza Shop A: Raises its pizza price from $10 to $15 because inflation has increased its costs. - Pizza Shop B: Keeps its pizza at $10 because it hasn't updated its prices yet. What happens? Customers start going to Pizza Shop B because its pizza is cheaper.

Shoe Leather Costs

Tim/Effort maging smaller cash balances. Having to go to the bank more often and deposit/withdrawl money (more costly)

Menu Costs

costs of chnaging prices.

• Print new menus with updated prices.

• Update prices on your website.

• Change prices on your ordering system.

Unexpected Inflation

Price of hair cut today vs price of hair cut 100 years ago.

monetary base

The monetary base is the total amount of money created by the Federal Reserve that exists as:

1. Currency: Physical cash (dollar bills and coins) held by the public and banks.

2. Bank reserves: Money that commercial banks keep in their accounts at the Federal Reserve.

Nominal Variable

Money you earn Ex) hourly wage pre inflation and tax

Real variables

What that money can actually buy (purchasing power).

money multiplier

explains how banks can increase the money supply by lending out money that people deposit.