Chapter 7 questions Flashcards
Where does inflation come from?
inflation is a result of the Fed and the banking system increasing the money supply
How can all consumers spend spend more money on all goods and services, without reducing their nominal savings?
The money supply must have increased
What is the common sense interpretation of the equation of exchange?
a years worth of output is bought by the money supply and spent and re-spent V times per year
who founded the monetarism school of economics?
Milton Friedman
Under What conditions would inflation have zero effect on the economy?
if it is wholly anticipated and evenly spread throughout the economy
what is a way to avoid being made worse off by anticipated inflation?
Buy goods whose prices inflate before the inflation starts
True, False. With unanticipated inflation, borrowers gain and lenders lose.
True. the borrow pays off the loan with inflated dollards
What are the two problems with uneven inflation?
Prices no longer reflect value, so mistakes are made
bubbles expand as systematic mistakes are made due to inflation
Which economic school emphasized inflationary bubbles?
Austrian
Why are interest rates enacted?
to delay consumption
What is the difference between dollars saved and dollars created by the fed?
Dollars saved have the potential to fuel consumption later
since they represent delayed consumption, since they represent delayed consumption.
Dollars made by the Fed dont
what happens when a Fed created inflationary bubble bursts?
unwanted capital goods and constructions are abandoned and the workers that produced them must all find new jobs
Why do the Austrians say that government and the central bank create bubble, though private markets do not?
Because there must be coordinated failures by many individuals and firms. government is the best supplier
what was the difference between inflation using gold as money and inflation using dollars not baked by gold?
inflation using gold was very low. inflation using unbacked dollars was high.
What was the cause of inflation in the late 1960’s?
the Fed’s monetizing debt to support the Vietnam
