CH4 money and inflation

macro economics

money

is the stock of assets that an be readily used to make transactions

the functions of money

• a store of value

• a unit of account

• a medium of exchange

fiat money

money that has no instrinsic value,

it is established as money by government decree, or fiat

commodity money

commodity with some intrinsic value for money (ex gold)

money supply

the quantity of money available in an economy

monetary policy

the government’s control over the money supply

open market operations

the purchase and sale of government bonds

currency

the sum of outsanding paper money and coins

demand depositis

the funds people hold in their checking accounts

quantity equation

money x velocity = price x transactions

M x V = P x T

income velocity of money

M x V = P x Y

real money balances

M/ P

the quantity of goods and services it can buy

seigniorage

the revenue raised by the printing of money

printing money to raise revenue is like

imposing an inflation tax

(inflation is like a tox on holding money)

nominal interest rate

the interest that the bank pays

real interest rate

the increase in your purchasing power

fisher equation

i = r + PI

real variables

all variables measured in physical units, such as quantities, relative prices

nominal variables

variables expressed in terms of money