Ch 15 - Monetary Thoery

Hyperinflation

Hyperinflation

is typically known as the very high and accelerating inflation.

The equation of exchange

conveys how a change in the money supply affects macroeconomy.

Loanable funds

money available for borrowing and lending.

nominal interest rate

The supply of money curve is vertical since it is not affected if the ________ moves higher or lower.

The vertical axis

on the money market graph measures the nominal interest rate, and it indicates that it is not adjusted for inflation.

borrowers

The high cost prohibits some ________ and discourages others.

Classical Dichotomy

theory that states a change in the money supply will affect nominal variables in the economy but not real variables.

Financial Intermediation

is the task of getting funds from savers (lenders) to spenders (borrowers)

Price level P

can be measured with the GDP Deflator.

Ms

is the supply of money and Md is the demand of money.

Real variables

things that are expressed in non- monetary units or adjusted for inflation.

real rate of interest

When the ________ is low, the quantity of funds demanded is higher, leading the demand curve to slope downward.

Money supply

can be defined as M1 or M2, where the velocity of money is the number of times the typical dollar of M1 or M2 is used to make purchases during a year.

interest rates

when they’re are high, the households and firms pare down the amount of money they hold in their wallets and transaction accounts where it earns little to no interest.

income rises

When ________, households and firms want to have more money on hand due to the fact that they conduct more transactions or more expensive transactions.

The money market

is determined by the supply and demand for money.

nominal interest rate

The amount of money supplied to the economy which is determined by the Fed and isnt affected by a change in the ________.

nominal interest rate

A rise in the ________ induced people and firms to place their funds where it can earn the higher return.

Velocity of Money

the number of times a typical unit of money is used for purchases in a year

The Quantity Theory of Money

the idea that inflation is almost proportional to the growth rate of the money supply

Hyperinflation

is typically known as the very high and accelerating inflation

Classical Dichotomy

theory that states a change in the money supply will affect nominal variables in the economy but not real variables

A Nominal Figure

is an unadjusted rate or price, without taking inflation or other factors into account

Nominal Interest Rate

the interest rate as states and not adjusted for inflation

Financial Intermediation

is the task of getting funds from savers (lenders) to spenders (borrowers)

Financial Intermediary

any firm or institution that participates in financial intermediation

Loanable funds

money available for borrowing and lending

Real interest rate

the interest rate adjusted for inflation

Real variables

things that are expressed in non-monetary units or adjusted for inflation

The demand for money

is the amount of money households, firms, and government, and foreign entities want to hold as currency and in their transaction accounts