Chapter 34

Question 1

Asset price inflation

Answer 1

The prices of assets rise more than their “real” value

Question 2

Q - 1: what is the difference between asset price I Larkin and a goods price inflation?

Answer 2

Asset inflation is rise in price of assets like houses and stocks above changes in their real values.

Goods inflation is the rise in the price of goods and services.

Question 3

Adaptive expectations

Answer 3

Expectations based in some way on the past

Question 4

Rational expectations

Answer 4

The expectations that economists model predicts

Question 5

Extrapolating expectations

Answer 5

Expectations that a trend will accelerate

Question 6

When nominal wages rise beyond growth of productivity what happens?

Answer 6

The SAS curve shifts up resulting in inflation

Question 7

Inflation =

Answer 7

Nominal wage increase - productivity growth

Question 8

Equation of exchange

Answer 8

An equation stating that the quantity of money • the velocity of money = the price level • the quantity of goods sold

MV = PQ

M = quantity of money

V = velocity

P = price level

Q = quantity of real goods sold

Question 9

Velocity

Answer 9

The number of times per year on average a dollar gets spent on goods and services

Question 10

3 assumptions of quantity theory:

Answer 10

1. Velocity is constant
2. Real output is independent of money supply
3. Causation goes from money to prices