Classical Theories of the Price Level, Pre-Fiat Systems, and Philosophy of Economics

Fill-in-the-blank practice flashcards reviewing the Quantity Theory of Money, Marxian price theory, pre-fiat commodity systems, and philosophy of social science.

In classical economics, the theory of prices is divided into relative prices, which explain the price of individual commodities relative to others, and the __________, which explains the price of everything today relative to another point in time.

price level

The radical shift in European economic history characterized by rising price levels following the inflow of New World gold and silver is known as the __________.

Price Revolution

On October 16, 1929, economist Irving Fisher famously declared that "stock prices have reached what looks like a __________".

permanently high plateau

In the Cambridge formulation of money demand, $M_t^D = k P_t Y_t$, the variable $k$ represents the __________.

constant of proportionality

In the equation of exchange $P_t Y_t = M_t V$, the term $V$ represents the __________ of money, which captures how many times a unit of currency circulates to clear nominal transactions.

velocity

The growth rate version of the equation of exchange is written as __________.

$$p + y = m + v$$

In the QTM model with sticky prices, prices adjust across periods according to the equation $\frac{P_{t+1}}{P_t} = \left(\frac{L_t}{L^*}\right)^\omega$, where the parameter $\omega$ determines __________.

how much prices react to excess or deficient levels of labor

The Quantity Theory proposition that changes in the money supply have no effect on real output in the long run is known as the __________ of money.

long-run neutrality

Steinsson and Hume argue for long-run monetary neutrality by comparing choosing the total quantity of money in an economy to choosing a __________.

unit of measure

Empirical research by Teles et al. (2015) shows that in low inflation environments, it is difficult to find a relationship between inflation and __________.

money growth

The tendency of individuals to confuse real and nominal values by thinking about money in terms of dollars rather than purchasing power is defined as __________.

money illusion

While the Quantity Theory of Money assumes causal direction runs from $M \rightarrow P$, Karl Marx’s theory of endogenous money argues that causality runs from __________.

$$P \rightarrow M$$

In Marx’s theory, the price level of non-gold commodities in terms of money is given by $P = P^* P_G$, where $P^*$ is the real value of commodities relative to gold and $P_G$ is the __________.

token price of gold

In 1931, Kurt Gödel published his incompleteness theorems, showing that any sufficiently powerful formal system contains true statements that cannot be __________ within that system.

proved

David Hume argued that induction cannot be justified logically because a deductive justification is impossible and an inductive justification would be __________.

circular

The confirmation problem where the observation of a white shoe provides logical confirmation for the claim "All ravens are black" is known as Hempel's __________.

raven paradox

The confirmation paradox where observations of green emeralds support both the hypothesis that all emeralds are green and the hypothesis that emeralds observed after 2030 are blue is called the __________ problem.

grue

Milton Friedman advocated for instrumentalism in economics, arguing that a theory should be evaluated solely by its __________ performance, rendering the realism of underlying assumptions irrelevant.

predictive

Karl Popper proposed that a scientific theory is demarcated from non-scientific claims if it has the potential to be __________ by empirical observation.

falsified

The philosophical challenge to falsificationism stating that hypotheses are never tested in isolation but as part of an entire package of assumptions is known as __________.

holism

John Stuart Mill argued that complex social sciences like political economy can only be studied scientifically by means of the __________ method.

deductive

The Latin phrase used in economic theory to qualify claims by holding all other potential disturbing factors constant is __________.

ceteris paribus

In his 2013 op-ed, Raj Chetty argues that economics is becoming more scientific due to big data, quasi-experimental methods, and __________.

natural experiments

In the commodity money mint/melt model, minting a coin containing silver $s$ with seigniorage tax $\epsilon$ and production cost $c$ yields zero profit at the upper price bound $P_u = \text{\_\_\_\_\_\_\_\_\_\_}$.

$$\frac{1}{\epsilon + s + c}$$

In the mint/melt commodity money model, melting a coin containing silver $s$ becomes profitable whenever the price level $P$ falls below the lower bound $P_l = \text{\_\_\_\_\_\_\_\_\_\_}$.

$$\frac{1}{s}$$

In the commodity money market equilibrium diagram, the region bounded between $P_u$ and $P_l$ represents price levels where __________ occurs.

no arbitrage

Francois Velde identifies the historical difficulty of keeping full-bodied small coins circulating alongside large coins as the "big problem of __________".

small change

Because the physical striking cost $c$ is roughly constant across coins, the production cost as a fraction of face value is $\frac{1}{e}$ times larger for a penny than a dollar, pushing the penny's minting bound $P_{up}$ far to the __________.

left

The economic observation that full-bodied coins are hoarded or melted while debased coins remain in transaction circulation is known as __________ Law.

Gresham's

To stabilize token currency and prevent overissue, early modern governments adopted the Standard Formula: monopolizing coinage, issuing token coins, and guaranteeing __________ into full-bodied commodity money at the official rate.

convertibility

During the 17th century in Castile under King Philip II, the government issued vast quantities of debased copper coins known as __________, causing nominal values to surge while real silver values collapsed.

vellón

The competitive debasement of silver thalers and gold florins during the Thirty Years' War in Germany and Bavaria (1619–1623) is historically termed the __________ inflation.

Kipper- und Wipperinflation