Chapter 10

Question 1

Fisher Effect

Answer 1

Nominal Interest Rate
= Real Interest Rate + Inflation

A increase in inflation causes and equal increase in the nominal interest rate.

Question 2

Money Demand

Answer 2

Reflects how much money people want to hold.

Question 3

Real Money Demand Function

Answer 3

(M/P)^d = L(i,Y)

If i goes up, money demand goes down.
(Opportunity cost of holding money)

If Y goes up, money demand also goes up.
(More Spending)

Question 4

Money Supply

Answer 4

Exogenous policy variable chosen by a central bank. -> vertical line!