IEBUS monetery

If the central bank wants to increase the money supply, what options does it have?

Open-market operations.

Changing the refinancing rate.

Changing the reserve requirements rates.

Quantitative easing.

What is the difference between the price level and inflation?

Inflation is the change of the price level, usually given in percentages. The price level is

the price of the representative consumption basket. We normalize the price level in the

base year to 100. Thus, any changes of the price level relative to the base year indicate the

inflation rate relative to the base year

Explain how an increase in the price level affects the real value of money.

Base year 2010 price level 100, year 2011, price level 110, inflation rate= 10%.

year 2012, price level 120, inflation rate between 2011 and 2012? 9.09%, not 10 percent.

What characteristics make an asset useful as a medium of exchange?

A medium of exchange is anything that is readily acceptable as payment.

A unit of account is the yardstick people use to post prices and record debts.

A store of value is an item that people can use to transfer purchasing power from the present to the future.

What is the difference between real and nominal exchange rate?

-The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another. The nominal exchange rate is expressed in two ways:

→Remember what is the base and the terms currency.

-The real exchange rate is the rate at which a person can trade the goods and services of one country for the goods and services of another. The real exchange rate compares the prices of domestic goods and foreign goods in the domestic economy.

How to calculate RER

real change rate = nominal exchange rate x domestic price / foreign price