Economics (Fach) / Money Growth and Inflation (Lektion)
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Money Growth and Inflation
Diese Lektion wurde von matildaws erstellt.
Diese Lektion ist leider nicht zum lernen freigegeben.
- quantity theory of money asserts that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate.
- Nominal variables are variables measured in monetary units.
- Real variables are variables measured in physical units. example the quantity of the corn monitory units is for example the money they got to produce the corn
- According to Hume and others, real economic variables do not change with changes in the money supply.
- According to the classical dichotomy, different forces influence real and nominal variables. Changes in the money supply affect nominal variables but not real variables. The irrelevance of monetary changes for real variables is called monetary neutrality.
- velocity of money refers to the speed at which the money changes hands, travelling around the economy from wallet to wallet.
- V = (P x Y)/M Where: V = velocity P = the price level Y = the quantity of output M = the quantity of money
- quantity equation: M x V =P xY The quantity equation relates the quantity of money (M) to the nominal value of output (P x Y).
- The quantity equation shows that an increase in the quantity of money in an economy must be reflected in one of three other variables: the price level must rise, • the quantity of output must rise, or • the velocity of money must fall.
- When the government raises revenue by printing money, it is said to levy an inflation tax.
- The Fisher effect refers to a one-to-one adjustment of the nominal interest rate to the inflation rate.
- Menu costs are the costs of adjusting prices
- nominal interest rate formula nominal interest rate = real interest rate +inflation rate
- real inflation rate stays the same before and during a infaltion
- A government can pay for its spending simply by printing more money. This can result in an “inflation tax” and hyperinflation.
- When banks loan out their deposits, they increase the quantity of money in the economy
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- Deflation can be potentially damaging because there would be little incentive to spend today if the expectation is for cheaper prices tomorrow.