AD-AS Flashcards
how is the real money supply calculated?
M, the nominal money supply, divided by P, the price level (M/P).
what does a higher price level mean?
an inward shift in the LM curve
what does a rise in P cause?
a fall in M/P (shift the LM curve to the left)
what does the aggregate demand curve plot?
the relationship between national income and the price level
the quantity theory of money asserts what?
-the quantity of money available determines the price level
and that
- the growth rate in the quantity of money available
determines the inflation rate.
what are nominal variables measured in?
monetary units
what are real variables measured in?
physical units
how is the relative price defined as?
in terms of the nominal price of one good divided by the nominal price of another
are relative prices expressed in terms of money?
no
relative prices are what?
real variables
how is the relative price expressed?
in terms of how much of one good has to be given up in purchasing another
what is the real wage?
the money wage adjusted for inflation measured by the ratio of the wage to price
what is meant by monetary neutrality?
The irrelevance of monetary changes for real variables
do real economic variables change with changes in the money supply?
no
what is the sticky wage theory?
nominal wages are often slow to adjust in the economy due to long-term contracts
